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The Times: Taxing oil majors hurts Britain's savings

LORD BROWNE of Madingley had a clear message for Government, as well as for more vociferous but less powerful critics, as he delivered BP’s bumper profits announcement. The UK’s pension funds depend heavily on his company for their income. Would the Chancellor kindly remember that before slapping extra taxes on the oil business.
This was not the first time that the BP chief executive had spelt out the importance of BP to the savings industry, but, aware of the anger that high oil prices can generate amongst consumers, Lord Browne is wisely pointing out that they are also the beneficiaries of the resulting profits.
A senior trade union leader has again called for BP’s “windfall” profits to be sequestered to help those who have lost pensions because their companies could not provide. But if companies had to provide every penny that is paid out in company pensions, as though they were giant Christmas clubs, company pension schemes would disappear overnight. They would be ruinous, whether based on final-salary promises or money purchase.
Private-sector pensions are paid from the investment returns earned on contributions paid into pension funds more than from the contributions themselves. Long-run studies show clearly that the shares of companies such as BP and Shell, which suffered similar abuse last week, deliver the returns that make invested pension schemes viable. They also indicate that dividends contribute far more of the real returns than capital gains.
To the initiated, this is an old story. The Chancellor and his acolytes plainly did not understand it. however, when they imposed a £5 billion-a-year tax on these dividends in 1997. So Lord Browne cannot take it for granted that the Treasury will get the message today. Everyone working in Great George Street will still get their pension if BP and Shell go bust tomorrow or are reduced to minimally profitable utilities. But those who work in the private sector will go hungry.
The Chancellor has reacted already to high oil prices by raising tax rates for North Sea producers. This will ensure that less money is invested in the sector and that the UK’s ever-more precious natural gas reserves run out even faster.
Investment in new sources of energy is just as vital a product of healthy profits in the oil industry as regular dividends. Lord Browne’s greatest financial contribution to BP has been to focus on acquisitions and buying in reserves and on finding new oil when the price recovered. Both the markets and his competitors could learn from BP’s lack of interest in trying to buy Repsol, of Spain, in today’s financial climate.
BP does not seem likely to please Americans, who reacted to their summer petrol shortage by urging companies to build more refineries. The company could make a useful contribution by taking better care of safety and security at its existing refineries. Lord Browne can claim, however, that BP is involved in more new oil projects than any producer outside Opec.
Like Shell, BP is also putting money into renewable energy. Oil multinationals are among the few with the resources and know-how to make an impact. But their vocation is to find new oil and gas and to deliver it. BP is doing just that.

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