Windfall taxes never work and always end up helping the Left

Awindfall tax on energy companies would not come close to solving the cost of living crisis plaguing Britain. Current estimates suggest that going after the profits of oil and gas firms would raise £2billion – no small chunk of change, but a pittance compared to the scale of the problem we’re facing. Yet, even if it raised double or triple the projections, a one-off tax raid would still be wrong.

The Tories should have learnt their lesson on tax after their decision to create a National Insurance levy to tackle the NHS backlog and fund social care. Changes to the National Insurance threshold in the March Budget are now expected to raise half of what was originally projected: about £6billion. It’s a sum that could have been found elsewhere, if the Prime Minister were willing to consider any reduction in the size of the state. Instead, the Government broke its manifesto promise not to raise key taxes.

Similarly, a windfall tax is said to be popular with the public. That is, apparently, why No10 is softening its opposition to imposing one. But as well as doing almost nothing to alleviate cost of living pressures, pursuing this policy would crystallise in people’s minds the idea that this Tory Government is a tax-raising one. It would be a further indication, too, that the Government is void of new ideas and relying on recycling old ones.

Case in point: the latest defence of windfall taxes is that they have been imposed in the past by both Labour and Tory governments. Left out of this analysis, however, are the major problems they can cause.

Tony Blair’s windfall tax on over 30 privatised companies, including water, telecoms and energy, for example, did nothing to quell the debate around the renationalisation of those firms, while almost certainly damaging investment in these sectors. George Osborne’s bank levy after the financial crash served as a blow to the City’s competitiveness, while much of the public continued to think that bankers had got off scot-free for mistakes leading up to the crisis.

Now, the former financial secretary to the Treasury, Jesse Norman, is using the windfall taxes imposed by Margaret Thatcher’s governments to justify another one today. Not only is context absent from this comparison (her administrations were defined by deregulation and, eventually, tax cuts for businesses; Johnson’s Government is hiking corporation tax), there is no discussion as to whether Mrs Thatcher was right to do as she did.

Taxes on businesses are ultimately taxes on people. A windfall tax on “excess profits” – a phrase more at home in a Corbyn government than a Tory one – would not hurt some faceless businessman. It would hit pension pots, take its toll on wages and make it harder to kick-start economic growth. And it would lend further legitimacy to activists who want to go after other corporate sectors. Last year, there were calls for a windfall tax on supermarket profits during the Covid lockdowns. This week, Oxfam is demanding an “excess profits” tax of a staggering 90 per cent on “big corporations across all industries”.

The best way to argue against dangerous, socialist tax grabs is to not do one yourself. The Tories are already on shaky ground when it comes to tax hikes. Approving a windfall tax could see them lose even more economic credibility.