A windfall tax on oil giants would harm – not help – pensioners

Look up this year’s performance of the shares and bonds which make up your pension fund and you will see that BP and Shell are the rare chinks of light. BP is up 15 per cent and Shell up 20 per cent, with both enjoying bumper profits on the back of high oil and gas prices.

Cue, then, for Labour and the Lib Dems to demand a windfall tax in order to confiscate some of these profits. The money ought to be used, Eds Miliband and Davey have said this morning, to help people pay their heating bills. In both their minds ‘dividends’ and ‘shareholders’ are rude words – whereas in reality the people with a stake in BP and Shell are in many cases exactly the same people who are struggling to pay their heating bills. Both companies form the backbone of many pension schemes. 

What’s more, this year’s bounce in their share prices is a small compensation for years in which they have performed poorly. The collapse in oil prices in 2014 took a huge chunk out of returns for many pension funds heavily invested in the sector. Again, in 2020 both Shell and BP suffered huge losses as demand for oil collapsed during the pandemic. I don’t remember Labour or the Lib Dems calling for either company to be bailed out on those occasions – they just want the state to snatch a punitive share of their profits during the good times.

The question is this then: do Miliband and Davey even appreciate how the retirement plans of many millions of ordinary workers depend on dividends and share values of public companies? Both are beneficiaries of gold-plated, index-linked pensions which will continue to be paid whatever happens to the value of shares, bonds and other investments. The taxpayer will pick up the tab to keep both Eds in the lifestyles to which they have become accustomed, throughout their retirements. It isn’t BP and Shell shareholders who are the entitled ones, who stand aloof from the everyday concerns of ordinary people; it is Miliband and Davey.

Their intervention exposes a growing divide in British society: between workers who are signed up for final salary public sector pensions and those who must rely on private sector pension schemes. The former are almost completely insulated from the performance of markets; the latter are utterly dependent on them for their retirement income. The problem is that the former group can afford to have a hostile attitude towards private enterprise, and so can the Labour party, given the dominance of public sector workers in its voter base. This is a problem which will not be resolved until final salary pensions – which have been reduced in the public sector in recent years – are finally abolished and all workers are given a stake in a healthy economy.

There is, of course, another undercurrent to this story. BP and Shell are the biggest villains for the divestment lobby – the fantasists who believe that if only oil companies could be driven to extinction we would magically and painlessly transform to a zero carbon economy. The current surge in gas prices is a sign of that folly: it reminds us how, in spite of huge investment in renewables in recent years, we are still heavily dependent on fossil fuels and will be for the foreseeable future. Divest if you like, but oil and gas companies are doing well at the moment because they are providing a vital public service, and we would be in serious trouble if they stopped providing it.