Money: There are some old precedents to Labour's windfall tax proposals

Unless you've been on a desert island for the last year or so, you'll know that a windfall tax is in the offing - and that it's nothing to do with taking some of the apples that blow off your trees in the autumn.

Windfall taxes, essentially one-off levies on certain areas of the economy, arguably have a long and ancient history, though not necessarily a glorious one. So why are they so much in the news now - and will they affect you?

Back in early medieval times such levies were the main way that the sovereign raised money, usually through such devices as "fifteenths", which meant everyone had to contribute a fifteenth of their property to help fund the latest overseas investment drive (then known as a war).

With the development of more sophisticated forms of revenue raising such as customs duties, excise, stamp duties and that comparative newcomer - income taxes - one-off levies faded away.

In recent times there have been occasional returns to windfall taxes, the best known being a one-off tax on banking deposits in 1981 which raised about pounds 400m. Less noticed or acknowledged was a Supplementary Petroleum Duty which came in at the same time, hit the oil producers in the North Sea and raised about pounds 1bn - but perhaps that could be argued as simply an increase in the existing Petroleum Revenue Tax.

Now we have another of windfall tax on the horizon with a pledge from Labour that, if elected, they would introduce a windfall levy on privatised utilities alleged to have made windfall profits. The money raised would go towards new training schemes.

Full details of how the levy would operate are unclear, though more details are emerging from shadow chancellor Gordon Brown's recent speeches. The yield has been talked of as pounds 5bn, though this one-off levy may bring in less. But what remains opaque is exactly who is caught by the levy and how it will be computed.

In terms of who will be caught, the water and electricity industries are the generally accepted targets. But does that mean just the distribution companies? Does it extend to electricity generators? What about other parts of the ex-public sector - BT, BR, British Steel, British Coal etc? Pronouncements this week suggest that British Gas and BT are in the target area.

The method of calculation is very difficult. The banking levy in 1981 looked at the average amount of deposits held over a past period. That had the merit of being fixed, easily measured and not manipulable (in that the period was already past when the tax was announced).

But if the target of the impending windfall levy is excess profits how are these to be measured? Set a norm and look who made more - but that arguably penalises the more efficient companies. Attack excess distributions? But that means going back to see who got the money - no doubt not the current shareholders. Look at the profit levels now? But that doesn't really get at the alleged excess profits of the past.

All one can say is that there is something of a Damocletian sword hanging over a part of the economy. If the levy only raises pounds 1bn, many commentators have argued that could easily be absorbed by the likely recipients of the bills. But the amounts involved seem certain to be higher and may start to hurt. Then again, a Treasury report this week seemed to suggest that utilities had made good profits since privatisation - while at the same time pointing to the regulatory regime as arguably the control mechanism.

Overall, there is a climate of uncertainty. There is talk of challenges at European level, but Labour are certain that the EU would not interfere. So it looks as if a Labour victory would be followed by extra tax bills to many companies, but it seems highly unlikely there would be actual bills to shareholders.

Clearly your investments in Privatised Co may go down in value (or up if it turns out that the levy will not hit it as the market had anticipated). And in due course, I suppose, prices may go up, but that is another issue which the regulators will no doubt get involved in.

Then again, some are arguing that the Conservatives got there first with the recent introduction of a reduced rate of tax allowances (6 per cent as opposed to the normal 25 per cent) for long-term plant and machinery. This affects investors in big plant installations - which includes water and electricity companies. And the yield is going to be up to pounds 750m annually on Inland Revenue figures.

John Whiting is a tax partner at Price Waterhouse.

Suggested Topics
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
The Pipes and Drums of The Scottish Regiments perform during the Opening Ceremony for the Glasgow 2014 Commonwealth Games at Celtic Park on July 23, 2014 in Glasgow, Scotland.
Commonwealth GamesThe actor encouraged the one billion viewers of the event to donate to the children's charity
Karen Dunbar performs
Entertainers showcase local wit, talent and irrepressible spirit
Members of the Scotland deleagtion walk past during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
Life and Style
fashion Designs are part of feminist art project by a British student
Very tasty: Vladimir Putin dining alone, perhaps sensibly
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
Arts and Entertainment
Top guns: Cole advised the makers of Second World War film Fury, starring Brad Pitt
filmLt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a uniform
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
Arts and Entertainment
A scene from Shakespeare in Love at the Noel Coward Theatre
theatreReview: Shakespeare in Love has moments of sheer stage poetry mixed with effervescent fun
Joining forces: young British men feature in an Isis video in which they urge Islamists in the West to join them in Iraq and Syria
newsWill the young Britons fighting in Syria be allowed to return home and resume their lives?
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
Finacial products from our partners
Property search
All the signs have been pointing up for buy-to-let, but there are clouds on the horizon

Buy-to-let: is it a boom or a bubble fit to burst?

People borrowing to be landlords could face the same restrictions as homebuyers, with MPs voicing fears that property speculation may be overheating the market

Moment of truth for payday lenders: Watchdog plans to curb cost of short-term loans

The chief of the City watchdog, Martin Wheatley, spoke exclusively to The Independent's Simon Read about its attempts to control the worst excesses of unscrupulous high-cost credit companies

Consumers given power to choose a green deal

How would you like to be able to choose how your electricity is made and even where it come from? It may sound futuristic and fanciful but the independent supplier Co-operative Energy has made it a reality this week.

'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers

City regulator says existing customers suffer worst rates

Motor insurers divided on proposals for whiplash ban

MPs want medical evidence for claims. Will this bring higher premiums?

British Gas repays £1m for mis-sold deals

British Gas was yesterday forced to pay back £1m to its customers after mis-selling them energy deals.

Bare necessities of life cost a pensioner £10,000

Pensioners now have to spend £10,387 a year on basic necessities such as food and fuel. new figures published today reveal.

Six months since its introduction, Obamacare has set market's pulse racing

As America's health reforms take effect, some firms look well placed to benefit, says Simon Read

Holidaymakers warned over hidden charges when opting to pay in sterling abroad

Fresh warnings emerged this week that overseas retailers and hotels aren't playing fair.

Employees will be able to request flexible hours in drive to make workplaces family friendly

From next week employees will be able to request changes to working hours. Rob Griffin weighs up the options

E2Energy's wind-turbine scheme offers green investors 7.5 per cent a year

If you're fed up with paltry returns on your savings and are interested in green energy, a new loan-based crowdfund launched this week could be a better home for your cash.

Why miss the chance of tax-free returns as Isas raise their game?

The tax-free limit of £15,000 is a big jump and rates for savers are starting to edge up, writes Simon Read
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    PMO Analyst - London - Banking - £350 - £400

    £350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

    Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

    £300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

    Insight Analyst – Permanent – Up to £40k – North London

    £35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

    Test Lead - London - Investment Banking

    £475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

    Day In a Page

    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Will the young Britons fighting in Syria be allowed to return home and resume their lives?

    Will Britons fighting in Syria be able to resume their lives?

    Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
    Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

    Beyoncé poses as Rosie the Riveter

    The wartime poster girl became the ultimate American symbol of female empowerment
    The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

    The quest to find the perfect pair of earphones

    Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
    US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

    Meet the US Army's shooting star

    Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
    Climate change threatens to make the antarctic fur seal extinct

    Take a good look while you can

    How climate change could wipe out this seal
    Should emergency hospital weddings be made easier for the terminally ill?

    Farewell, my lovely

    Should emergency hospital weddings be made easier?
    Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

    Crowdfunded novel nominated for Booker Prize

    Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
    Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

    Vladimir Putin employs a full-time food taster

    John Walsh salutes those brave souls who have, throughout history, put their knives on the line
    Tour de France effect brings Hollywood blockbusters to Yorkshire

    Tour de France effect brings Hollywood blockbusters to Yorkshire

    A $25m thriller starring Sam Worthington to be made in God's Own Country
    Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

    Will The Minerva Project change the face of higher learning?

    The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
    The 10 best pedicure products

    Feet treat: 10 best pedicure products

    Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
    Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

    Commonwealth Games 2014

    Great Scots! Planes and pipers welcome in Glasgow's Games
    Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

    Jack Pitt-Brooke

    Manchester City and Patrick Vieira make the right stand on racism
    How Terry Newton tragedy made iron men seek help to tackle their psychological demons

    How Newton tragedy made iron men seek help to tackle their psychological demons

    Over a hundred rugby league players have contacted clinic to deal with mental challenges of game