Revealed: ExxonMobil, Shell and BP among oil companies paying negative tax in UK on some North Sea operations
Some of the world’s biggest oil companies are currently paying negative tax on their fossil fuel extraction and production operations in the North Sea.
Official data published by the UK government-backed Extractive Industries Transparency Initiative shows that in the tax year 2019-20, ExxonMobil received £117m in total from HMRC, Shell got £110m, and BP received £39m.
But these organisations are not alone.
Shell got £110m from HMRC in the 2019 to 2020 tax year
A third of all significant energy companies operating in the North Sea paid negative tax last year.
This is possible in large part because of a UK tax policy that was brought in just a few months after the Paris climate accord was agreed in 2015.
The policy allows oil and gas companies to claim back public money in order to help with decommissioning rigs and infrastructure as the UK progresses towards its net zero carbon emissions targets.
Since the Paris agreement, Exxon has received net tax repayments of £360m on its North Sea operations, BP £490m, and Shell £400m, rounded to the nearest 10 million.
Some of these sums relate to corporate tax arrangements, but significant portions relate to money for decommissioning.
The UK government’s Oil and Gas Authority has estimated that the total bill for decommissioning will be £51bn.
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But because of the government’s tax policy, the British taxpayer will be responsible for nearly 40% of that over the coming decades.
HMRC has estimated that the cost to the exchequer will be £18.3bn between now and 2065.
This comes as total government income from taxes on oil revenue is decreasing, largely due to falling demand and the cost of decommissioning payments.
Energy Research company Rystad Energy recently named the UK as the country that offers oil and gas companies the “best profit conditions” in the world “to develop big offshore fields.”
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This has been illustrated by researchers like Greg Muttitt, who is a senior policy adviser at the International Institute for Sustainable Development.
He has calculated that in 2019 the UK government took $1.72 (£1.24) in taxes per barrel of oil, while the Norwegian government took $21.35 (£15.44).
Campaign groups say the current tax policy effectively amounts to the British public subsidising fossil fuel extraction, even as they are being urged to make greener choices in their own lives.
ExxonMobil received £117m from HMRC in the 2019 to 2020 tax year. Pic: AP
Environmental lawyer and campaign group Uplift founder Tessa Khan told Sky News: “These companies are allowed to extract oil and gas for private gain, not the public’s benefit and certainly not the Treasury’s.
“They’re not helping to pay for our hospitals and schools, they’re taking public money and handing it to their executives and shareholders.
“The harm to the climate from their actions will be borne by us all, with the poorest hit the hardest.
“There can be no excuses for propping them up with subsidies in a climate emergency. That era is over.”
A section of the BP Eastern Trough Area Project oil platform seen in the North Sea in 2014. File pic
A Treasury spokesperson told Sky News: “We’re leading the world in building back better and greener from the pandemic.
“We were the first major economy to commit to net zero by 2050 and one of the first to phase out petrol and diesel car sales by 2030.
“The UK oil and gas industry has paid around £375bn in production taxes to date.
“Relief for decommissioning costs is a fundamental part of the UK’s tax system, contributing to the safe removal of oil and gas infrastructure from our natural environment whilst ensuring companies are encouraged to invest in the UK.”
A spokesperson from ExxonMobil said: “The figures in the UK EITI report relate only to extractive operations (oil & gas production), several of which are nearing the end of their economic life.
“ExxonMobil also has downstream and chemical operations in the UK, and overall made a contribution to the UK of £5.2bn in direct and indirect taxes and duties in 2020.
“Over the lifetime of the North Sea, we have been a major, net contributor to the tax revenues generated by the basin and the recent refunds simply represent a repayment of some prior paid taxes as some of our older fields enter the decommissioning phase of their life.”
A spokesperson from Shell told Sky News: “We are open about our tax payments so that people can understand what we pay and why.
“We voluntarily disclose more information than we are required to and lead best practice in this area.
“The question you raise is whether it is right that companies get tax relief for decommissioning assets.
“Decommissioning is part of the lifecycle of oil fields.
“This phase of work is heavily regulated and subject to tax legislation that enables tax relief.
“The concept of granting tax relief for genuine business expenses is fundamental to regimes that tax profits and is applicable and available to all businesses in all industries with few exceptions.
“Decommissioning costs in the oil and gas industry are treated consistently as a business expense.”
A spokesperson for BP told Sky News: “The EITI’s data cover only the extractive part of our business in the UK, our North Sea business.
“All BP’s North Sea assets are owned by companies subject to UK tax in accordance with UK law.
“BP has contributed over £40bn in taxes to the UK government with respect to its North Sea business.”
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Sky News has launched the first daily prime time news show dedicated to climate change.
The Daily Climate Show is broadcast at 6.30pm and 9.30pm Monday to Friday on Sky News, the Sky News website and app, on YouTube and Twitter.
Hosted by Anna Jones, it follows Sky News correspondents as they investigate how global warming is changing our landscape and how we all live our lives.
The show also highlights solutions to the crisis and how small changes can make a big difference.
The business secretary will next week hold talks with dozens of private sector bosses as the government contends with a significant corporate backlash to Labour’s first fiscal event in nearly 15 years.
Sky News has learnt that executives have been invited to join a conference call on Monday with Jonathan Reynolds, in what will represent his first meaningful engagement with employers since Wednesday’s budget statement.
Rachel Reeves, the chancellor, unsettled financial markets with plans for billions of pounds in extra borrowing, and unnerved business leaders by saying she would raise an additional £25bn annually by hiking their national insurance contributions.
An increase in employer NICs had been trailed by officials in advance of the budget, but the lowering of the threshold to just £5,000 has triggered forecasts of a wave of redundancies and even insolvencies across labour-intensive industries.
Sectors such as retail and hospitality, which employ substantial numbers of part-time workers, have been particularly vocal in their condemnation of the move.
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On Friday, the Financial Times published comments made by the chief executive of Barclays in which he defended Ms Reeves.
“I think they’ve done an admirable job of balancing spending, borrowing and taxation in order to drive the fundamental objective of growth,” CS Venkatakrishnan said.
His was a rare voice among prominent business figures in backing the chancellor, however, with many questioning whether the government had a meaningful plan to grow the economy.
Mr Reynolds held a similar call with business leaders within days of general election victory, and over 100 bosses are understood to have been invited to Monday’s discussion.
A spokesman for the Department for Business and Trade declined to comment ahead of Monday’s call.
First things first: don’t panic.
What you need to know is this. The budget has not gone down well in financial markets. Indeed, it’s gone down about as badly as any budget in recent years, save for Liz Truss’s mini-budget.
The pound is weaker. Government bond yields (essentially, the interest rate the exchequer pays on its debt) have gone up.
That’s precisely the opposite market reaction to the one chancellors like to see after they commend their fiscal statements to the house.
In hindsight, perhaps we shouldn’t be surprised.
After all, the new government just committed itself to considerably more borrowing than its predecessors – about £140bn more borrowing in the coming years. And that money has to be borrowed from someone – namely, financial markets.
But those financial markets are now reassessing how keen they are to lend to the UK.
The upshot is that the pound has fallen quite sharply (the biggest two-day fall in trade-weighted sterling in 18 months) and gilt yields – the interest rate paid by the government – have risen quite sharply.
This was all beginning to crystallise shortly after the budget speech, with yields beginning to rise and the pound beginning to weaken, the moment investors and economists got their hands on the budget documentation.
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Chancellor challenged over gilt yield spike
But the falls in the pound and the rises in the bond yields accelerated today.
This is not, to be absolutely clear, the kind of response any chancellor wants to see after a budget – let alone their first budget in office.
Indeed, I can’t remember another budget which saw as hostile a market response as this one in many years – save for one.
That exception is, of course, the Liz Truss/Kwasi Kwarteng mini-budget of 2022. And here is where you’ll find the silver lining for Keir Starmer and Rachel Reeves.
The rises in gilt yields and falls in sterling in recent hours and days are still far shy of what took place in the run up and aftermath of the mini-budget. This does not yet feel like a crisis moment for UK markets.
But nor is it anything like good news for the government. In fact, it’s pretty awful. Because higher borrowing rates for UK debt mean it (well, us) will end up paying considerably more to service our debt in the coming years.
Rachel Reeves leaving 11 Downing Street before the budget. Pic: PA
And that debt is about to balloon dramatically because of the plans laid down by the chancellor this week.
And this is where things get particularly sticky for Ms Reeves.
In that budget documentation, the Office for Budget Responsibility said the chancellor could afford to see those gilt yields rise by about 1.3 percentage points, but then when they exceeded this level, the so-called “headroom” she had against her fiscal rules would evaporate.
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In other words, she’d break those rules – which, recall, are considerably less strict than the ones she inherited from Jeremy Hunt.
Which raises the question: where are those gilt yields right now? How close are they to the danger zone where the chancellor ends up breaking her rules?
Short answer: worryingly close. Because, right now, the yield on five-year government debt (which is the maturity the OBR focuses on most) is more than halfway towards that danger zone – only 56 basis points away from hitting the point where debt interest costs eat up any leeway the chancellor has to avoid breaking her rules.
Now, we are not in crisis territory yet. Nor can every move in currencies and bonds be attributed to this budget.
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Markets are volatile right now. There’s lots going on: a US election next week and a Bank of England decision on interest rates next week.
The chancellor could get lucky. Gilt yields could settle in the coming days. But, right now, the UK, with its high level of public and private debt, with its new government which has just pledged to borrow many billions more in the coming years, is being closely scrutinised by the “bond vigilantes”.
A Halloween nightmare for any chancellor.
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