Why is BP important to the UK economy?
- 10 June 2010
- From the section Business
"The government must put down a marker with the US administration that the survival and long-term prosperity of BP is a vital British interest," the former British ambassador to the US, Sir Christopher Meyer, has told the BBC.
He urged Prime Minister David Cameron to raise the issue in his scheduled conversation with US President Barack Obama over the weekend.
London Mayor Boris Johnson has expressed concern about the "anti-British rhetoric that seems to be permeating from America".
Speaking on BBC Radio 4's Today programme, he said that he "would like to see a bit of cool heads rather than endlessly buck-passing and name-calling".
So why is there so much concern about the effect on the British economy?
BP is a huge company, but its shares have almost halved in value since the explosion that set off the spill in the Gulf of Mexico on 20 April.
Its stock market value has fallen from about £125bn to about £70bn, which may make other oil companies think about making a takeover bid, although shareholders would be unlikely to accept an offer at the current levels.
There is also a chance that BP will end up not paying dividends this year and it is almost certain that the amount BP is having to pay out for the clean-up in the US will eventually affect the dividend.
"When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves," Boris Johnson said.
UK pension funds do indeed have big holdings of BP shares and the company says that £1 of every £7 paid in dividends to pension funds by FTSE 100 companies last year came from BP.
It is estimated that about 18 million people in the UK either own BP shares or pay into a pension fund that holds BP shares.
BP paid £930m in UK tax on its profits in 2009, which was well down on the £1.7bn it had paid in each of the previous three years.
The company employs 10,105 people in the UK. The employees paid £490m in income tax and National Insurance on their earnings, while BP paid £110m in employer's National Insurance contributions.
If you add together the corporation tax and production tax paid by BP, together with the National Insurance and income tax paid by its employees and the VAT and fuel excise duty paid by its customers, you get £5.8bn, which is about enough to fund the entire budget of the Department for International Development.
It is not just the UK economy that is vulnerable to BP's problems. The company employs 22,800 people in the US.
BBC business editor Robert Peston points out that 39% of the company's shares are held in the US, about a third of them by individuals rather than institutions.
He adds that those US shareholders might not be happy that every time the US president lays into BP, they find themselves a bit poorer.