Shell backlash shows no profit is safe in windfall tax-crazed Britain

Another windfall tax after Shell profits? Britain is at risk of becoming uninvestable

Pity the folks in Shell’s communications department, who must be tempted to wear bullet-proof armour whenever they send out a trading update. Yesterday’s numbers were impressive, as you’d expect when energy prices are inflated.

They also avoided paying any of Rishi Sunak’s windfall tax in the quarter – because they’d invested the cash in the North Sea rather than pocketing it, they avoided the punch (for now). Is this a sign of welcome investment in the UK’s energy infrastructure? We would argue it is. Is that investment more important than ever when every bit of energy we have to bring in from abroad leaves the UK open to geopolitical risk and forced to deals with regimes that range from unstable to unpalatable? Yes.

Others, well, had different ideas. Shell’s profits were, per the Shadow Energy Secretary Ed Miliband, “further proof that we need a proper windfall tax to make the energy companies pay their fair share.” The TUC said it was “another reminder of why we need to bring our energy sector back into public ownership.” One particularly excitable left-wing columnist said Shell were “picking our pockets.” 

Does it look great that the company is engaged in a share buyback? It does not. But does a share buyback alongside sizable profits, some of them reinvested in new projects, make Shell the devil incarnate, the Halloween villain of capitalism? No. 

The energy industry is the epitome of the basic rules of business – risk equals reward. The risk was laid clear during the pandemic, when energy companies across the world saw extraordinary losses as demand fell to near zero. 

The windfall tax remains a bad idea. Sunak’s investment loophole amounts to a stick’em up ultimatum: invest it, or we’ll take it. As one free market wag put it yesterday, demanding a business pays extra taxes every time it makes a healthy profit is the politics of a banana republic. 

There are now calls for a windfall tax on banks, which the Treasury refused to deny was off the table yesterday. Will the purveyors of newsprint (currently spiking through the roof) or wheat based dried pasta (up more than 100 per cent over the past year) be next? Who knows. In windfall tax Britain, no profit is safe.