Shell defends embarrassment of riches

Banks can breathe a sigh of relief; there is a new capitalist bogey to take their place in the stocks – the big bad oil companies.

You might have thought the new record of profitability (£14 billion) set yesterday for a UK-listed company by Shell would be something to celebrate.

Yet Tony Woodley, director general of Unite, the trade union, finds the profits "quite frankly obscene" and urges the Government to impose a windfall profit tax.

No doubt he'll be saying the same thing when Centrica and other energy utilities report their profits in a few weeks' time.

As it happens, the oil companies are already subject to a variety of windfall profit taxes. They are called excise duty, VAT and petroleum revenue tax and they account for the vast bulk of the price you pay at the pump.

Shell will also very probably pay a record amount of corporation tax this year, while the dividend – also at a record – will largely be paid not to the fat cats of popular myth but to pension funds and other long-term investors in which millions of ordinary people have an interest.

Many people don't approve of what oil companies do, yet these are not organisations that thrust their product on a reluctant world. It is the consumer that pollutes, not the oil companies themselves. Some of them, including Shell, are in fact at the forefront of best practice on the environment and emissions in terms of the way they operate.

Though Shell is a British company, the great bulk of its production and therefore profits comes from overseas. Even if the Government thought further taxation appropriate, it would find it quite difficult to impose, and, if it acted oppressively, Shell would merely up sticks and move back to Holland or somewhere else with a better appreciation of the company's need to make money. Last year, the company invested $24bn and plans to carry on at that pace into the indefinite future.

Oil is becoming ever more difficult and expensive to find and extract. By abandoning its usual practice of publishing reserves at the same time as the preliminary results, Shell seemed to confirm the suspicion that it is not replacing its reserves nearly as fast as it is expending them. It's not for lack of trying.

One thing that would ensure we are for ever to be at the mercy of the capricious and sometimes spiteful suppliers of Russia and the Middle East for our energy needs would be to start imposing windfall profit taxes on the likes of BP and Shell. Mr Woodley is no doubt a fine fellow, but he is being naive and financially illiterate in describing these profits as "obscene". Right now, Shell needs all the profits it can get.

Jeremy Warner, The Independent, 1 February 2008