Windfall tax on oil giants won’t hurt British pensioners, thinktank finds

Britain’s main pension funds own less than 0.2% of Shell and BP shares, undermining claims that a windfall tax on big oil companies would harm the retirement incomes of UK savers.

A review of the oil giants’ shares by the Common Wealth thinktank shows the largest holdings are by US investment companies, including BlackRock and Vanguard, and the wealthy Norwegian pension funds. The UK’s multibillion-pound defined contribution occupational pension funds, which hold the savings of tens of millions of workers, rank among the least important investors after decades of spreading their investments in different markets around the world.

Last week, oil industry supporters defended the government’s refusal to levy a windfall tax on North Sea oil firms, including BP and Shell, by saying it would force them to cut investment and dividend payments to shareholders. BP chief executive Bernard Looney, announcing record quarterly profits of £5bn last week, said plans for “up to £18bn worth of investment” over the next eight years would go ahead even if there was a windfall tax on the companies profits. He said £2.5bn would be spent buying back shares to boost their value.

Shell also reported a record quarterly profit of £7.3bn for the first three months of the year, piling further pressure on the government to use a windfall tax to fund special measures to tackle soaring household energy bills.

Rishi Sunak, the chancellor, who has resisted attempts by No 10 to pay for extra support with higher government borrowing, has hinted that he is considering a tax on oil companies, although business secretary Kwasi Kwarteng is understood to be against the idea.

Nick Butler, a visiting professor at King’s College London who spent almost 30 years as an executive at BP, was among many to argue that a windfall tax would force the oil companies to redirect profits away from shareholders, who he said were ordinary people depending on dividend income to support their pensions.

“I think that shareholders who are just pensioners, they are not men in black hats – they are people like you if you have a BP shareholding in your pension. [Paying a dividend] isn’t taking money out of the system,” Butler told the BBC last week.

The largest 10 direct shareholdings in both companies are dominated by the subsidiaries of US asset management giants BlackRock and Vanguard, while Asian and Norwegian sovereign wealth funds also own substantial chunks. BlackRock subsidiaries account for four of the largest 10 BP shareholders, and three of the top 10 Shell shareholders.

Common Wealth said that while many defined contribution occupational schemes invested in global shares, using large US fund managers, “their vulnerability to a windfall tax on BP and Shell will be absorbed by the huge breadth and diversification of these asset management giants”.

Independent pensions consultant John Ralfe said most large final-salary retirement schemes were unlikely to hold BP or Shell shares after selling their holdings to buy safer bonds.

Research earlier this year by the TUC, Common Wealth and the High Pay Centre showed that UK pension funds accounted for only 2.4% of the total market value of UK-listed shares, down from 13% before the financial crisis in 2008. Indirect ownership via investment funds accounted for another 6%.

“The idea that BP or Shell are widows’ and orphans’ stocks, or that pensioners rely on income from the oil giants to make ends meet, is just risible,” said Ralfe. “As an argument against a windfall tax, it has no validity whatsoever.”

Mathew Lawrence, director of Common Wealth, said: “Ministers had two lines of defence – that a windfall tax would cut levels of investment, which even BP has denied, and that the impact on shareholders would substantially hit people’s pensions.

“But, though many UK pensioners do hold shares in BP and Shell, the reality is that UK-based pension funds now only own a very small percentage of the total. Ongoing trends, including pension fund diversification and the rise of international asset managers, have transformed ownership of the energy giants.

“This has in turn changed who receives the dividends. Given this, any impact from a windfall tax on ordinary pensioners would be more than outweighed by the benefits retired people would receive from additional financial support, funded by redistributing some of BP and Shell’s bumper profits.”