HomeBusinessLooney’s tune on windfall taxes is unpersuasive | Nils Pratley
Looney’s tune on windfall taxes is unpersuasive | Nils Pratley
May 13, 2022
BP’s best bet for avoiding a windfall tax might be to hide Bernard Looney on an offshore oil platform for a few months. Every time the chief executive ventures on to tax and investment territory, he inflames the politics around the windfall debate.
Looney’s memorable remark last November – one he must regret – was the boast about BP being “a cash machine at these types of prices”. Oil prices at the time were $85 a barrel, so the extra profits at $105 were bound to invite scrutiny when they flow, in the most part, from Russia’s war in Ukraine.
Then there was the admission a couple of weeks ago – repeated at Thursday’s shareholder meeting – that a windfall tax wouldn’t alter one jot BP’s plan to invest £18bn in the UK over the rest of the decade. That line invited outsiders to wonder whether BP could do more than £2bn-ish a year on average. The UK’s need to invest in energy security has become more urgent suddenly, so it’s fair to ask if BP has upped its ambition too. If any element of the £18bn represents a boost to previous plans, the company has not identified it.
In that context, another of Looney’s comments on Thursday read almost as an invitation to the government to have an arm-wrestle. “By definition, windfall taxes are unpredictable and could challenge investment in homegrown energy,” he said. Does that mean BP could invest more, but won’t if the government takes the windfall route? If that’s the pitch, Rishi Sunak, a chancellor who says he is in “pragmatic” mode, is almost obliged to emerge with a victory of some description from this little confrontation.
The weirdness in the whole debate, as pointed out here more than once, is that we’re not talking about huge sums. In BP’s case, an increase from 40% to 50% in the tax rate on North Sea profits this year would mean a payment of £250m on top of the predicted £1bn at the regular rate. For a group currently spending £1bn-plus a quarter on buying back shares, a quarter of a billion is not a gamechanger.
Yes, one can call any one-off levy “unpredictable” but, come on, it’s not as if extra taxes in exceptionally favourable trading conditions are unheard of. Other European countries are already doing it. As long as they occur only once a decade, the UK’s recent average, the local fiscal regime will still look stable. Looney’s tune is not persuasive.
BT is at last focusing on the main event
Amid falling stock markets and untethered “stable” coins, BT offered a port in a storm on Thursday: the shares were up a bit on full-year numbers and the final dividend was restored at the level previously advertised.
The group has even finally got shot of BT Sport, a venture that, depending on your point of view, was a vanity project on the part of its previous chief executive, Gavin Patterson, or a necessary Sky-jamming device to stem the loss of broadband customers in the mid-2010s.
Or, rather, BT will be half-out of sport. The creation of a joint venture with Warner Bros Discovery will see BT receive only £93m upfront. The real money – up to £540m – will have to come via earn-out fees over four years if milestones are met. In a business heavily reliant on the renewal of sports rights, especially football rights, the structure was probably inevitable. As important, perhaps, was the signing of an extension to a reciprocal channel supply deal with Sky; it provides a little certainty.
BT’s main game these days is fast fibre, where today’s boss, Philip Jansen, says Openreach is building “like fury”. In hard numbers, that means 7.2m premises have been passed, another 3m will follow this year, and then 4m annually thereafter. Goldman Sachs’ analysts calculate that the pace equates to three or four times that of peers, so the thesis that BT should eventually emerge from its £15bn spending programme with two-thirds of the fast-fibre market remains intact.
One critical moving part in the mix is how many customers actually buy the souped-up broadband connections. The take-up rate is 25% currently, which BT reckons “compares well” with European rollouts at the current early stage. The ratio will be one to watch over coming quarters but, at the moment, BT seems on its way to becoming the telecoms equivalent of a slightly more exciting National Grid. There’s no disgrace in that: it’s roughly what BT should always have been. The footie was always a sideshow.