We asked experts how BP can make record profits in the cost of living crisis

In case there was any doubt that economic inequality is out of control, oil giants BP and Shell recently announced record profits while millions of people in the UK struggle to afford their energy bills and make the choice between eating or heating.

The cost of living crisis is international but has hit the UK hardest among the world’s richer countries, with the IMF estimating that Britain is set to be the only major economy to shrink in 2023. 

Inflation has hit heights not seen in decades. Prices are, on average, 10 per cent higher than they were a year ago and the cost of many cheaper food products has risen even faster. For energy bills it’s even worse, as the energy price cap set by regulator Ofgem doubled in the space of a year and was set to be even higher without government intervention. The impact on people and communities has been devastating.

Which is why record profits for companies is so jarring for so many. Among the more printable reactions, shadow environment secretary Ed Miliband called the profits “outrageous”, researchers at think tank IPPR labelled them “scandalous”.

”While bill-payers across the UK are struggling with soaring costs, BP’s shareholders are reaping enormous payouts,” said IPPR researcher Joseph Evans. “After the oil giant made record profits in 2022 it passed an extraordinary £9.35 billion directly back to shareholders through share buybacks. 

“That’s a scandalous use of surplus cash which could have been used to lower bills, or invested in the green transition. America and Canada are already taking action on excessive shareholder payouts: it’s long overdue for the government to follow suit by introducing a tax on share buyback schemes.” 

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So why are profits so high? And is there anything, realistically, that can be done to redress the balance? We asked the experts.

Dr Mari Martiskainen, a professor of energy and society at the University of Sussex, said: “BP profits are going up as the company is profiting from soaring oil and gas prices due to the Russian war on Ukraine. As less Russian oil and gas reach the markets, prices go up, which then increases profits for suppliers like BP. But they also profit from trading in volatile oil and gas markets.”

BP has said its profits are going to be invested in green energy projects “focusing on solar growth and aiming to become a leader in offshore wind”. 

But Martiskainen says Tuesday’s profit announcement “also included details of BP actually reducing their commitment to emissions reductions”. Instead they are investing in more in oil and gas.

In its update, BP said it aims for a fall of 20 to 30 per cent in emissions from the carbon in its oil and gas production. This is lower than the previous aim of 35 to 40 per cent.

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“BP’s exorbitant profits are the result of fundamentally broken markets,” Dr Marie Claire Brisbois, a senior lecturer in energy policy at the University of Sussex, told The Big Issue. “Despite the widespread social harm caused by the cost of living crisis, BP has legal incentives to maximise their profits so they can hand out returns to mostly wealthy shareholders. 

“Government has been conservative in taxing away these excess profits, partly because they want BP to keep investing in UK gas development – despite the fact that renewables can provide, by far, the cheapest possible energy. 

“On top of that, poor design of energy markets in the UK means that when gas prices are high, electricity prices are inflated, even though the actual cost of electricity is currently much lower than that of gas.

“The simplest way out of this crisis is a massive investment in subsidies and programs for home energy retrofits for all households, and a rapid buildout of renewable energy. We need to help citizens use less energy, and we need what we do use to be cheaper and cleaner. 

“Energy markets also need to be reformed as soon as possible to untether the price of electricity from that of gas.

“More broadly, policy action should be taken to cap corporate profits, so that large oil companies can’t fuel a surge in profits for the wealthy at the expense of regular citizens.”

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