Britain's BP Problem

Greenpeace protesters outside BP headquarters in London. Ben Stansall / AFP-Getty Images

Four thousand miles of ocean won't insulate the U.K. from BP's catastrophic mess in the Gulf of Mexico. The woes of Britain's second-largest company are sure to spill into the country's already faltering economy. Last week Business Secretary Vince Cable warned of "major, indirect effects on the British economy" from the spill, with investors among the principal victims. Last year BP accounted for about 14 percent of all dividends paid out in the U.K., a total of $10 billion. Nearly every leading U.K. pension fund holds BP stock; by some reckonings, 18 million Brits own some type of stake in the company. That's 30 percent of the population, and they can all expect to take a hit.

Since the disaster, BP's share price has lost more than 40 percent. The cleanup bill is already more than $1.4 billion, a small fraction of the likely total. Now the company is under mounting pressure from U.S. lawmakers to reduce or abandon altogether its 2010 dividend. The last time BP cut its dividend was in the dark days of the 1992 recession; any repeat would be a blow to the pensions industry, which is already reeling from the removal of tax privileges under the former Labour government. BP regularly ranks as Britain's largest corporate taxpayer, last year handing over $6 billion to the Treasury. Facing a $226 billion shortfall, the government badly needs that revenue this year, but the more money BP loses, the smaller its tax bill will be. Though the leaking crude remains miles from Britain's shores, the economic tar balls are heading that way.