James Gard: Welcome to Morningstar. So BP and Shell have reported first quarter earnings and naturally the windfall tax rhetoric has cranked up again. For those who think oil companies should pay extra tax, you’re in luck. What’s known as the “Energy Profits Levy” was brought in May 2022 as a 25% tax on profits – this was then bumped up to 35% in the autumn. Electricity generators need to pay 40% on profits too. Oil and gas companies also pay an extra slab of corporation tax. The European Union also levies its own tax. But this isn’t enough for some opposition politicians, who argue that companies like BP and Shell should pay more. The windfall tax regime has not been running for a full year yet but it aims to raise £5 billion a year. BP paid $700 million last year and $300 million in the last quarter. Shell is expected to pay $500 million into the UK coffers this year. As a revenue-raising exercise, it’s clearly working.

But if the oil companies are spending billions buying back their shares, could they pay more? Possibly. The risk for the current government is that oil and gas prices continue to weaken as demand drops and the Ukraine shock wears off. And the levy could well be deterring UK oil and gas producers from investing in the North Sea, thus increasing our dependence on foreign energy. Oil giants expect to make decent profits this year but don’t expect to match 2022’s record numbers. We’ll have to wait until next February to find out how much they made in 2023 and a lot can change in a year. By then a Labour government may be waiting in the wings to hike the windfall tax – but then bumper profits could be a distant memory. While it may be possible for an oil company to back renewables and fossil fuels, it may be harder for it to make the right level of profits to please the Treasury, shareholders and the public.

For Morningstar, I’m James Gard.