Tesco chairman John Allan, aside from calling for a windfall tax on North Sea oil and producers, also said this on Tuesday: “I think they [the companies’ boards] are expecting it and I doubt they would actually be much fazed by it.”
Since Allan is a well-connected FTSE 100 boardroom heavyweight, it’s safe to assume he’s correct on the first point. And one strongly suspects he’s right on the second, too: most versions of a windfall tax do not involve sums that should scare directors or shareholders.
The Labour party’s formula imagines a temporary increase in the rate of tax on North Sea profits from 40% to 50% to capture the “windfall” element generated by the spike in wholesale gas and oil prices. As noted here last week, BP says it already anticipates paying up to £1bn in tax on its North Sea profits this year, so a windfall surcharge on top would only raise a further £250m in its case.
A sum that size – levied as a genuine one-off – would not cause a meltdown at a company with a stock market value of £79bn that expects to distribute £8bn to shareholders this year via dividends and share buy-backs. The BP chief executive, Bernard Looney, has already conceded that £18bn-worth of planned investment in the UK over the next decade would not be imperilled. Allan’s “not much fazed” conclusion sounds fair.
The flip-side of a modest revenue-raising proposal is, of course, the modesty of its impact in relieving the cost of energy for consumers, even if directed exclusively at low-income households. Labour mentioned as little as £1.2bn overall when pitching its windfall idea in January. The further surge in wholesale prices might inflate the figure to £3bn-ish under the same formula, but that has to be seen in the context of additional energy costs for UK consumers this year, which will be north of £20bn in total on plausible estimates.
Allan’s intervention, on a day British Gas-owner Centrica unveiled a profits upgrade thanks to strong returns from its North Sea gas fields and nuclear assets, may help to inject a note of realism into this debate. Boards are pragmatic: if windfall taxes are seen to apply only in exceptional circumstances, they are not going to rip up long-term investment plans. Equally, a windfall tax does not offer salvation. From the point of view of the Treasury and consumers, it’s a case of every little helps, as a chairman of Tesco could have put it.
But, yes, as Allan did say, the argument in favour is starting to look “overwhelming”.
The Arga saga still smoulders
Here is the first recommendation of Sir John Kingman’s review of the Financial Reporting Council, the audit watchdog, published in December 2018: “The FRC should be replaced as soon as possible with a new independent regulator with clear statutory powers and objectives.”
Note the “as soon as possible” imperative. Kingman’s report was prompted by the chaotic failure of construction giant Carillion that year, a shocking example of a large and important company collapsing like a house of cards despite receiving a clean bill of financial health. Reform was deemed urgent because stakeholders in many guises – shareholders, employees, government, suppliers – needed greater confidence in the quality of corporate reporting in the UK.
Kingman’s report was widely hailed as setting the right direction. The FRC was too toothless for the modern world. A new body with extra powers to police audit standards and competition, to be called the Audit, Reporting and Governance Authority (Arga), was needed. Two further inquires agreed, a white paper followed and the FRC got busy preparing itself for reinvention as Arga.
It is still waiting. Tuesday’s Queen’s Speech relegated audit reform to the status of draft bill, as opposed to a definitely-will-happen-in-this-parliament bill. More foot-dragging is indefensible. It is true that the FRC has acquired more teeth in the last couple of years, but only an act of parliament can deliver many of the necessary reforms, such as statutory funding for the new body and powers to put large private companies (think BHS) under the audit microscope.
One can’t blame Kwasi Kwarteng, the business secretary, who seems to be keen to get the show rolling. But one can note that he is the fourth holder of his post since Kingman’s report landed, which illustrates how long the Arga saga has been running. The excuse this time, it is said, is that audit reform doesn’t excite voters in the way that, say, the creation of a football regulator does. That excuse is feeble.