According to company filings, Shell and BP have not paid any corporation taxes on North Sea oil and gas production over the past three years.
Oil giants have a global footprint of greenhouse gasses that is more than five times larger than Britain’s and are now enjoying billions in tax breaks as well as reliefs for their oil and gas production.
BP and Shell paid no corporation taxes or production levies for North Sea oil operations in 2018 and 2020. BP also claimed tax reliefs of almost £400m according to annual “payments-to-governments” reports that were analysed by the Observer.
They paid out more dividends to shareholders than £44bn over the same period.
In 2016, George Osborne, the former chancellor, effectively eliminated a 35% petroleum revenue tax. Oil giants now have billions of pounds of taxpayer assistance for decommissioning rigs.
After-tax cuts to encourage production, the North Sea is now one the most lucrative areas for oil and gas production in the world.
Shell and BP set targets to reach net-zero carbon emissions by 2050 through investments in cleaner energy. However, they say that the UK will still need oil and gas from the North Sea which supports thousands of jobs.
Climate campaigners are challenging the UK’s tax system in a high court proceeding. They demand the removal of the payments and the ban on new oil and gas projects in the North Sea. This will help reduce carbon emissions.
Philip Evans, an oil and gas campaigner from Greenpeace UK said that it was outrageous that the UK is preparing to host global Climate Talks in Glasgow. However, the UK has one of the lowest effective tax rates for oil extraction.
Companies that have contributed to the climate crisis for many decades will get tax breaks in the amount of billions of pounds.
There are approximately 180 oil rigs located in the North Sea. The sector has produced about £360bn net tax revenues, or about £7.2bn per year, since 1970.
The UK has one of the lowest oil taxes in the world. Rystad Energy’s January analysis revealed that the UK is the most profitable country for developing oil and gas mega-projects.
The bill for decommissioning the North Sea oil and gas infrastructure will cost taxpayers more than £18bn. This includes tax repayments as well as a reduction of offshore corporation tax. Campaigners call for the end to handouts and that they be used to invest in clean energy.
Kwasi Kwarteng is the business secretary and faces legal challenges from campaigners over tax payments to oil-and gas operators. Paid to Pollute is a coalition of environmental organizations that claims the tax handouts to oil companies by taxpayers are illegal because they violate the UK’s legal obligation to reach net zero emissions by 2050. The judicial review will be held before the end the year.
Gabrielle Jeliazkov is a Campaigner at Platform. Platform is a UK-based group that studies the environmental and social effects of global oil production and supports the legal case. She said that the government had spent too much time supporting oil giants with tax breaks and subsidies. It has had disastrous consequences for the environment.”
New projects in the North Sea are facing strong opposition from BP and Shell. Friends of the Earth and the New Economics Foundation published a report last week that found that the oil-and-gas industry is planning to apply for approval for 30 offshore projects before 2025.
Shell has supported plans for Cambo, a controversial oilfield off Shetland. It contains approximately 800m barrels of oil and is currently awaiting approval by the Oil and Gas Authority (a government licensing body). Greenpeace was unsuccessful in a legal bid to have the government revoke BP’s permit to drill at the Vorlich North Sea oilfield. Production began in November 2013.
Reuters reported last week that Shell had rejected Shell’s plans for the Jackdaw North Sea gas field after reviewing its environmental statement.
Shell spokeswoman said that “our total oil production already peaked at 2019 and we expect it will continue to decline, even through divestments. Already, we’re investing billions in low-carbon energy. The North Sea Transition Deal, which was signed earlier this year, also outlines how the sector will reduce its emissions in line with the government’s net-zero targets.” According to the company, it did not pay any corporation tax for North Sea production last fiscal year due to tax losses in prior years.
A spokesperson for BP stated that all BP’s North Sea assets were owned by companies subject to UK tax according to UK law. Over the years, BP contributed more than £40bn to the UK’s tax collection from its North Sea operations.
“We have not paid any North Sea corporate taxes in recent years due to long-standing UK tax regulations. This is because we received tax relief for the large investments we made in the North Sea industry and the difficult price environment (including the steep oil price drops in 2015 and 2020).
A spokesperson for the government stated that: “The UK’s oil and gas industry has paid approximately £375bn in production tax to date. Companies in the North Sea are subject to headline rates that are more than twice those paid by other companies. The UK’s tax system includes a significant part that provides relief for decommissioning expenses.
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