August 1, 2008
Why an energy windfall tax may not happen
Treasury officials are NOT working on potential plans for a windfall tax. That’s what I’m being briefed.
Of course that doesn’t mean that Gordon Brown may not bow to pressure in the autumn and put it in the pre-budget report. It could be a vote-winner. Plenty of siren voices are urging such a move (unions, backbenchers, junior ministers, maybe even some cabinet ministers).
But the prime minister is sophisticated enough to know about the downsides. Energy companies can simply put up their prices to compensate for the charge - which would cause even more public anger.
Plus there is the investment issue. Peter Luff, chair of the business select committee, published a report last week which included a call for a (small) tax on profits made through the European emissions trading scheme.
Yesterday he warned that a bigger tax on “excessive profits” would be a disaster, preventing energy companies from putting in new infrastructure investment and storing up a much, much bigger problem 10 years down the line.
Here’s a typical response from business today to newspaper reports that the prime minister is (still) considering a levy:
“Imposing a windfall tax on energy company profits won’t bring down the price of energy bills, so consumers and business will lose out. The tax would be a knee-jerk reaction that risks the UK’s ability to attract essential investment needed to secure and upgrade our future power supplies. Failure to gain this investment will mean consumers are even less likely to see any reduction in their bills as the country would remain in a precarious position over supply.” (Chris Hannant, head of policy at the British Chambers of Commerce)
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Oil companies already pay high taxes. Maurice Fitzpatrick, head of tax at Grant Thornton, says the North Sea oil tax works out at about 50-70 per cent (it’s paid as petroleum revenue tax AND corporation tax).
The estimated £15bn of tax from North Sea oil this year is about a quarter of the entire UK corporation tax-take - despite energy accounting for only about 3 per cent of GDP.
