The cost of living vs energy profits

In April, consumer-price inflation in the UK reached 9%, which is its highest rate since 1982. This is happening due to a number of intertwining factors, including the increased borrowing and spending amid the Covid-19 pandemic and the subsequent lockdowns. The effects of the Russo-Ukraine conflict are also being seen in inflated oil and gas prices.

Despite a record cost-of-living crisis for many, energy companies are seemingly enjoying profits across the board. SSE announced an operating profit of £1.5bn ($1.8bn), a 15% year-on-year increase. Shell made £7.3bn ($9.2bn) in profit in the first quarter of this year, nearly triple the profit it announced for the same period last year. BP also reported an underlying profit of £4.9bn ($6.1bn), which exceeded analyst expectations.

A cost-of-living support package

Labour has been calling for the government to increase welfare payments to cushion the poorest against the cost-of-living crisis. Rishi Sunak, the chancellor of the exchequer, has said this is not possible because Britain’s welfare programmes are run on computer systems that can only be updated once a year because they are so old. Instead, after surging pressure, on May 26 Sunak presented a ‘cost-of-living support package’ to Parliament. This announcement included a new tax on the profits of oil and gas companies operating in the UK. It is hoped that this will help fund the £15bn of support desperately needed for the poorest section of society suffering amid the cost-of-living crisis.

This new policy has received strong criticism from members of the cabinet who have dubbed it ‘anti-investment’ and ‘unconservative’. Kwasi Kwarteng, the UK Business Secretary, is among the Cabinet ministers who oppose the new policy. He told Bloomberg, “I’ve been always against windfall tax, I think they’re arbitrary, I think they discourage investment.”

Some steps were being taken

If investment should falter it would be greatly disheartening, as there have been many encouraging investments into clean energy. SSE announced that it was developing Scotland’s largest and the world’s deepest tethered floating offshore wind farm off the coast of Angus. SSE is also constructing an electricity cable that will connect Shetland to the UK mainland for the first time, transporting renewable energy to the national electricity grid while securing the islands’ energy supply.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

Unfortunate side effects

This new policy is necessary, as it is unacceptable for the government to let the poorest members of society slip further into poverty while energy companies are seeing record profits. An unfortunate side-effect of this windfall tax, however, could be that it may become an excuse for energy companies to slow down their investments in clean energy. The urgent call for clean energy could once again be deprioritised, as it is often seen as a luxury and only transpires when companies’ profits are exceeding estimates. This would also be short-sighted as the Guardian reported that renewable energy is now cheaper than fossil fuels and that Britain’s wind and solar farms could reduce household energy bills and save consumers £800m. We can only hope that energy companies decide to continue and even broaden their investments in clean energy, using the huge profits they will continue to generate despite this tax. It will not only help people financially but will aid in the urgent environmental movement in the long term.