While it’s not the first time Sir Jim Ratcliffe has flirted with the idea of leaving the UK (he previously moved from Britain to Switzerland, back to Britain and then to Monaco), it looks as though he might follow through now – the decision may even be permanent, in fact.
For, according to Brian Gilvary, the executive chair of Sir Jim’s company, Ineos Energy, one of Britain’s wealthiest men, is considering shifting £3bn of investment to the US because “the UK has become one of the most unstable fiscal regimes in the world from a perspective of natural resources and energy”.
“It means we cannot invest with any certainty because we can’t be sure what future tax rates will be,” he said. Correct me if I’m wrong, but I don’t recall either Sir Jim or Gilvary saying anything similar when they were furloughing employees during the pandemic. Some might consider Ineos slinging its hook at a time when the bills are coming due from that as pretty rum.
As for the US, consider this: even with all those tariffs president Donald Trump is fond of, the country is running a huge and unsustainable budget deficit. At some point, the US government will have to push through the sort of fiscal consolidation chancellor Rachel Reeves is grappling with. A much bigger one, in point of fact. The “stable” US taxes Ineos is so fond of might not remain that way.
But is this really because of British taxes? Or is that just a convenient excuse from a public relations perspective at a time of heated debate over the government’s fiscal plans and its other policies, including net zero and the prime minister’s decision to press ahead with changes to employment law to boost workers’ rights.
The entire energy sector is currently grappling with an oil price that has been on the slide and looks set to remain in the doldrums for some time.
Opec, the Organisation of the Petroleum Exporting Countries, has two choices when it comes to keeping revenues flowing from pumping oil. The first is to limit production and force prices higher by reducing supply. This is something that has been tried in recent years. But it’s not easy to pull off. It requires the cartel’s members to agree to quotas, which inevitably means some get to pump more than others. Those unhappy with their share of the pie are apt to grouse about it in private and sometimes in public. Some quietly cheat.
This brings us to option two – the current one of pump, pump and pump some more, with the aim of blowing competitors with higher costs out of the business. The Middle East’s clout as an oil-producing region rests on its abundant, easy to extract supplies. Estimates put Saudi Arabia’s cost per barrel at less than $10 (£7.40). That compares to the North Sea’s 2023 average of $25, at current exchange rates.
America’s shale and fracking industries, meanwhile, need oil prices to stay comfortably above $60 to turn a profit.
The UK government’s appetite for using the North Sea’s remaining stock of hydrocarbons as a handy revenue spinner means Sir Jim has a point – at least partially. But here’s the thing: other producers will opt to weather the storm in the hopes that the US shale industry will end up getting mothballed and prices will rise again as a result. Maybe Reeves can also be prevailed upon to lower the burden.
Of course, those other producers probably don’t all have the other problems Ineos faces: namely the boss’s sports obsession. But he’s also a big sports fan, as a key investor in Manchester United, and seems not to have woken up to the old adage that the quickest way to make a small fortune is to invest a large one in sports, at least not until recently. That is especially true of football.
Ratings agencies Fitch and Moody’s also sounded the alarm over Ineos’s debt levels earlier this year, putting the company on a negative outlook. This sort of move can make it much more expensive for businesses to borrow – something Ineos has been doing a lot of. Sir Jim built his vast fortune on borrowing to buy up unloved assets and then squeezing profit from them.
Needless to say, redundancies have been made at Man United, while Ineos also got into a spat (now settled) with New Zealand Rugby over its sponsorship of the All Blacks, blaming “high energy costs and extreme carbon taxes” and (bizarrely) the “deindustrialisation of Europe” for an alleged failure to make sponsorship payments.
It is fair to say that Britain’s taxes have been making life difficult for many businesses and Rachel Reeves needs to pay due to that in her Budget. She needs growth and to find that, Labour needs to get the business community onside.
But some of Sir Jim’s troubles are homegrown and to many, pinning the blame for its recent moves on the British government looks very much like an attempt at distraction.
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