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The Guardian (UK): Profit without honour: Shell has not had a good year. Yesterday it admitted it had overestimated its oil reserves by a cool 1.4bn barrels. This was the fifth time Shell had downgraded its reserves in a little over a year, the biggest scandal in the company's history…” (ShellNews.net) Posted 5 Feb 05

 

Leader

Friday February 4, 2005

 

The Treasury says it does not intend to impose any form of windfall tax on the oil companies. But Gordon Brown would be less than human if he had not at least thought about such a tax in the wake of Shell's disclosure of £9.3bn net annual profit, a UK all-comers record. This would have provided a nice little sum to plug the burgeoning gap in the public finances. The Tories would, with good reason, have accused the chancellor of raiding corporate profits to camouflage its policy mistakes. But Mr Brown could have pointed to a precedent from 1981 when Sir Geoffrey Howe imposed a once-and-for-all levy of 2.5% on non-interest-bearing bank deposits, worth £400m then (and much more today). And Labour has itself already levied a £4.8bn windfall tax in 1997 on privatised utilities earmarked for funding the welfare to work programme.

Both of those charges were on corporations whose main activities at that time were in the UK. Shell, on the other hand, is an international company. It would have been been extremely unfair to levy a tax on profits earned abroad - and the act of doing so in the UK might have triggered a chain reaction by others. This does not mean that it would have been unfair to penalise the oil companies. If their huge profits were the result of exploiting an oligopolistic ability not to pass on cost reductions when crude oil prices fell then that is a legitimate cause for investigation by the competition authorities. The trouble is that such accusations are difficult to prove, especially in a cyclical industry such as oil, which is populated by highly paid accountants.

 

Shell has not had a good year. Yesterday it admitted it had overestimated its oil reserves by a cool 1.4bn barrels. This was the fifth time Shell had downgraded its reserves in a little over a year, the biggest scandal in the company's history, and one that led to the departure of three top executives. Small wonder that Shell's share price fell yesterday despite record results. Shell now has far less oil to sell in future compared with what it claimed a year ago. The company has been spared a windfall tax this time - but not the stench of bad corporate citizenship. If Shell wants to win back some of its lost reputation for good governance it could at least do one thing this year: make sure that its inflated profits are subject to a full 30% corporation tax charge and not whittled down by (perfectly legal) accounting wheezes. In that event, the taxpayer would at least have a stake in part of the bonanza. Who knows, it may even set a good example for other oil companies to follow.

 

http://www.guardian.co.uk/leaders/story/0,,1405487,00.html


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