Shell won't pay the UK windfall tax this year despite eye-watering profits

Economics Editor Joel Hills explains why Shell won't pay the windfall tax this year

Shell has made $30 billion (£26 billion) in the first nine months of 2022 and is on course to make a truly staggering annual profit.

The pandemic and the war in Ukraine have caused the market price of oil and gas to spike in such a way that energy producers are chalking up revenues they could only have dreamed of a year ago.

Shell makes money when oil is $40 a barrel. When a barrel averages $100, as it did between July and August, the company is in jackpot territory.

For reasons which have nothing at all to do with the ingenuity of Shell’s executive team, oil and gas revenues are falling from the sky like manna from heaven and, though market prices have eased from the dizzying highs we saw in the summer, Putin’s war rages on and the deluge looks set to continue.

Shell shareholders will be delighted but, as the CEO acknowledges, many of its customers are struggling.

This morning, Ben Van Beurden repeated his view that it is “only sensible” for governments to cash in on the energy profits bonanza. Windfall taxes are, he argues the “right” and “moral” way “to help the most vulnerable in society”.

The UK has a windfall tax. Rishi Sunak introduced an “Energy Profits Levy” in May but Shell says it will not be paying it this year and it’s by no means certain the company ever will.

In theory, the levy means oil and gas companies pay an extra 25% on their profits (after May 26) made from production on the UK Continental Shelf.

In practice, both the levy and the old tax regime allow profits to be offset against investment and decommissioning costs.

Shell is spending money, a lot of money, in the North Sea decommissioning old fields and expanding existing ones.

Shell CEO Ben van Beurden speaks to ITV News

Pierce is being upgraded “to get gas into the UK quickly”, Jackdaw is expected to produce “first gas” in the next few years.

“We simply don’t have profits which we can be taxed against,” explains Sinead Gorman, Shell’s chief financial officer.

She does not expect Shell to pay the Energy Price Levy until the beginning of next year at the earliest. What happens then depends on the oil price - Sunak’s levy falls away if it dips below $70.

The UK’s system of tax reliefs has undoubtedly helped to persuade Shell to invest in its UK operations, what’s less clear is how much of that investment would have taken place without those tax incentives.

The fact that Shell has not paid any tax on its UK income since 2017 also sticks in the throat of some.

“We need a proper windfall tax on energy companies making bumper profits in this crisis, to help fund our energy price freeze,” said Ed Miliband, Labour’s Shadow climate change and net zero secretary.

Shell’s UK tax bill may be non-existent but it is boom-time for its UK shareholders. This year, in addition to the dividend of $7.5 billion (and counting), Shell is spending $18.5 billion (and counting) buying back shares.

Fair enough. We should remember that the company’s shareholders include the investment funds which manage pensions saving of behalf of millions of people. They are entitled to a share of the spoils.

But it is both interesting and slightly bizarre that Shell is choosing not to use any of the billions of dollars that have fallen into its arms to turbo-charge efforts to hit its target of Net Zero emissions by 2050.

Capital expenditure this year remains fixed at between $23 - $27 billion. Around a quarter of that is being funnelled into renewables. 

Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know.