A windfall tax: popular but misguided?

Windfall taxes always sound easy and harmless, said the Daily Mail. “Very few people feel tender emotions towards huge corporations”, such as the oil and gas companies that are currently raking in record profits. And at a time when millions are struggling because of tax hikes, and runaway inflation, “the idea of creaming off large sums of money from energy giants and using it to ease the pain of ordinary people is almost impossible to resist”. Labour first proposed a one-off tax on North Sea oil and gas producers in January, which it says could raise £2bn to set against energy bills. Initially, the Government rejected the idea out of hand. But now the Chancellor, Rishi Sunak, is seriously considering a windfall tax, said Tim Shipman in The Sunday Times. Boris Johnson’s chief advisers, including his powerful new deputy chief of staff David Canzini, are said to be deeply opposed, on the grounds that such taxes are “ideologically unconservative”. But the PM himself seems to be coming round to the idea.

A number of cabinet members have quite rightly spoken out against this “asinine idea”, said The Daily Telegraph. “Windfall levies are retrospective, changing the rules on a whim by hiking taxes when people happen to have made more money.” This is unfair to the businesses affected, and it also “injects uncertainty and instability into the tax system”. It would reduce investment at the very time when we need more financing for the UK’s oil and gas fields. Actually, there is “a respectable free-market argument” for windfall taxes, said John Rentoul on The Independent. The energy companies’ recent profits are the product of luck, “not hard work or innovation” – the price of oil has risen 70% in the past year, owing largely to Russia’s invasion of Ukraine. There is also a good one-nation Tory argument for spending the proceeds on the mitigation of poverty, at a time of exceptional hardship – even if it wouldn’t raise a vast amount (perhaps equivalent to £150 per household). Besides, such a tax would be extremely popular, particularly among voters in the “red wall” seats the Tories won in 2019.

In the circumstances, it makes sense that Sunak is considering a special form of windfall tax, said the Daily Mail – one that would offer energy firms different rates of tax based on what they are prepared to invest in UK infrastructure. That would allow the Government to raise some money “while also encouraging good business practice”. Treasury officials are still working on their plans, said the FT. In the meantime, the Chancellor has told energy producers that if they do not quickly increase their investment commitments, then “no option is off the table”.