FTSE up as BP’s record profit stirs more windfall tax debate

“BP may be enemy number one in the public’s eyes for its record profits, but its latest success has helped to drive up the FTSE 100, which in turn will benefit people up and down the country with exposure to UK stocks in their pension,” says Russ Mould, Investment Director at AJ Bell.

“The UK blue chip index advanced 0.5% to 7,873 with energy companies the key driver, alongside a good showing from banks and pharmaceuticals.

“That’s a welcome result given the miserable showing on Wall Street last night, where the Nasdaq fell 1% and the S&P 500 dropped 0.6%. This followed stronger than expected jobs numbers last Friday in the US. A strengthening labour market theoretically makes it less likely that the Federal Reserve will halt interest rate rises anytime soon. The Fed needs to see both the jobs market and inflation start to cool before it can justify changing its stance on rates.

“Over the past month or so, investors have become more optimistic that we’re near the top of the rate rise cycle, hence why you’ve seen higher-risk companies do well on the stock market. If this optimism turns out to be misplaced then we’ll likely see investors flock back to sectors where you can typically find value stocks such as banking, energy and tobacco. In a way, today’s movement on the FTSE 100 already reflects this investor thinking.”

BP

“Just as ExxonMobil’s results angered The White House, which called its high profits ‘outrageous’, news that BP has recorded record profits is also likely to make the UK public’s blood boil.

“The situation is no different to last time. Oil and gas companies have benefited from the spike in energy prices as a direct result of Russia invading Ukraine which causes various countries to rethink the source of their supplies. The big oil companies have made a load of money while consumers and businesses have suffered from their energy bills going through the roof. The nation says: ‘Does that seem fair?’

“Politicians don’t think so, hence the call for greater windfall taxes on these profits. Oil and gas firms have already seen their taxes increase, yet they’ve been able to offset some of this amount by accounting for investments in areas such as decommissioning oil platforms.

“The more money companies like BP make, the stronger the calls for them to give some of it back through tax. The answer from the energy companies remains the same – yes, shareholders are getting some of the bounty via dividends, which is the normal course of business, but a lot of the profit is also being reinvested in renewable energy projects which will benefit people down the line.

“BP’s had time to fine-tune its defence and it’s no surprise that its latest results have the headline ‘performing while transforming’. It’s doing everything one would desire from a business – growing earnings, paying down debt, paying more dividends than it did last year, buying back shares, and laying the foundations for future growth.

“Unfortunately, BP’s success makes it a target because other people have suffered at the same time it has enjoyed bolstered earnings – namely the public and businesses who’ve had to stomach higher energy bills. Therefore, BP cannot lay back and expect to see praise for its operational and financial performance.”

These articles are for information purposes only and are not a personal recommendation or advice.