TeaEsco President John Allen, in addition to imposing unexpected taxes on North Sea oil and producers, also said on Tuesday: “I think they [the companies’ boards] Looking forward to it and I suspect they will be really surprised by this.”
Since Allen is a well-connected FTSE 100 boardroom heavyweight, it is safe to assume that he is right on the first point. And one strongly suspects he’s right on the other: Most versions of an untaxed tax do not include amounts that would scare off directors or shareholders.
The Labor Party’s formula envisions a temporary increase in the tax rate on North Sea profits from 40% to 50% to capture the “windfall” element generated by the spike in bulk gas and oil prices. As reported here last week, BP says it expects to pay up to £1bn in taxes on its North Sea profits this year, so an unexpected surcharge on top of it only matters £250m. will increase.
An amount—taxed as an actual lump sum—does not cause a recession at a company with a stock market value of £79bn that expects to distribute £8bn to shareholders this year through dividends and share buy-backs. BP chief executive Bernard Looney has already acknowledged that a planned £18bn-worth of investment in the UK over the next decade will not be at risk. Allen’s “not much surprised” conclusion seems reasonable.
The flip side of the modest revenue-raising proposal is the modesty of its effect in reducing energy costs for consumers, even if it is directed specifically at low-income households. Presenting its unexpected idea in January, Labor mentioned a total of as little as £1.2bn. A further jump in wholesale prices could raise this figure to £3bn-ish under the same formula, but this should be viewed in the context of additional energy costs for UK consumers this year, north of the £20bn total on the laudable Will happen. Estimate.
Allen’s intervention, a day when British gas-owner Centrica unveiled a profit upgrade for strong returns from its North Sea gas fields and nuclear assets, may help inject a note of realism into the debate. Boards are practical: If unforeseen taxes are seen to be applicable only in exceptional circumstances, they are not going to spoil long-term investment plans. Equally, an unexpected tax does not provide salvation. From the Treasury’s and consumers’ perspectives, it’s every little help that a Tesco president could say.
But, yes, as Alan said, the argument in favor is starting to sound “overwhelming”.
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Arga saga still smolders
Here is the first recommendation of Sir John Kingman’s review of the Financial Reporting Council, 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.”
Pay attention to the “as soon as possible” imperative. Kingman’s report was inspired by the chaotic failure of construction giant Carillion that year, a shocking example of a large and important company collapsing like a pack of cards despite receiving a clean bill of financial health. The reform was deemed urgent as stakeholders in many forms – shareholders, employees, government, suppliers – needed greater confidence in the quality of corporate reporting in the UK.
Kingman’s report was widely welcomed for setting the right direction. The FRC was too toothless for the modern world. A new body, called the Audit, Reporting and Governance Authority (ARGA), was needed with additional powers to police audit standards and competition. Two more inquiries were agreed upon, a white paper arrived, and the FRC got busy preparing itself for re-invention as Arga.
It’s still waiting. Tuesday’s Queen’s Speech struck down audit reform in the event of a draft bill, unlike this Parliament bill that was on course. Pulling more legs is unforgivable. It is true that the FRC has acquired more powers over the years, but only an Act of Parliament can provide many much needed reforms, such as statutory funds for a new body and powers to hold large private companies (BHS). Think) under the audit microscope.
The business secretary, Quasi Quarteng, can’t be faulted, who is eager to move the show forward. But one can note that he is the fourth holder of his position since the Kingman report, which shows how long the Arga saga has been going on. It is said that the excuse this time is that audit reform doesn’t excite voters in the way that, say, the creation of a football regulator. That excuse is weak.