Britain’s major pension funds hold less than 0.2% of shares in Shell and BP, contradicting claims that a windfall tax on big oil companies would hurt the retirement incomes of British savers.
A review of the oil giants’ shares by the Common Wealth think tank shows the biggest holdings are held by US investment firms, including BlackRock and Vanguard, and wealthy Norwegian pension funds. Britain’s multi-billion-pound defined contribution occupational pension funds, which hold the savings of tens of millions of workers, rank among the smallest investors after decades of spreading their investments across different markets around the world .
Oil industry supporters last week defended the government’s refusal to levy a windfall tax on North Sea oil companies, including BP and Shell, saying it would force them to cut investment and pay dividends to shareholders. BP chief executive Bernard Looney, announcing record quarterly profits of £5bn last week, said plans for “up to £18bn of investment” over the next eight years would continue even if there were a windfall tax on corporate profits. He said £2.5billion would be spent buying back shares to increase their value.
Shell also reported record quarterly profit of £7.3billion for the first three months of the year, putting further pressure on the government to use a windfall tax to fund special measures to deal with soaring household energy bills.
Chancellor Rishi Sunak, who has resisted No 10’s attempts to pay for additional support with higher government borrowing, has hinted he is considering a tax on oil companies, despite Business Secretary Kwasi Kwarteng being supposed to be against the idea.
Nick Butler, a visiting professor at King’s College London who spent nearly 30 years as an executive at BP, was one of many to argue that a windfall tax would force oil companies to redirect profits to shareholders, who , according to him, were ordinary people dependent on dividend income to support their pensions.
“I think shareholders who are just pensioners, they are not black hat men – they are people like you if you have a BP stake in your pension. [Paying a dividend] does not take money out of the system,” Butler told the BBC last week.
The 10 largest direct stakes in the two companies are dominated by subsidiaries of US asset management giants BlackRock and Vanguard, while Asian and Norwegian sovereign wealth funds also have large shares. BlackRock subsidiaries represent four of BP’s top 10 shareholders and three of Shell’s top 10 shareholders.
Common Wealth said that while many occupational defined contribution plans invest in global equities, using large US fund managers, “their vulnerability to a windfall tax on BP and Shell will be absorbed by the enormous breadth and diversification of these asset management giants”.
Independent pensions consultant John Ralfe said most large end-salary pension schemes were unlikely to hold shares of BP or Shell after selling their holdings to buy safer bonds.
Research earlier this year by the TUC, Common Wealth and the High Pay Center showed that UK pension funds accounted for just 2.4% of the total market value of shares listed in the UK, down from 13% before. the 2008 financial crisis. Indirect ownership via investment funds accounted for an additional 6%.
“The idea that BP or Shell are widows and orphans stocks, or that pensioners are relying on the income of oil giants to make ends meet, is just laughable,” Ralfe said. “As an argument against a windfall tax, it has no validity.”
Mathew Lawrence, director of Common Wealth, said: “Ministers had two lines of defense – that a windfall tax would reduce investment levels, which even BP denied, and that the impact on shareholders would significantly affect the thought people.
“But, although many UK pensioners hold shares of BP and Shell, the reality is that UK-based pension funds now only hold a very small percentage of the total. Ongoing trends, including the diversification of pension funds and the rise of international asset managers, have transformed the ownership of energy giants.
“That in turn has changed who gets the dividends. Given this, any impact of a windfall tax on ordinary pensioners would be more than offset by the benefits pensioners would receive from additional financial support, funded by redistributing some of the windfall profits from BP and Shell.