They lost the argument, now they must pay the price of their profligacy
Windfall Tax: ROAD TO THE TAX
Thursday 03 July 1997
Since then, the utilities have been on a war footing. They have squirmed and wriggled, they have complained and cajoled, they have whined and they have dined in an attempt to persuade opinion-formers what an arbitrary, retrospective and unfair tax it is. And finally they have threatened. Tax us and we will see you in court. But their every act has merely brought them, Oedipus-like, closer to their fate.
However hard the utilities have lobbied, Labour has always been one step ahead, impervious to their pleas and implacable in its determination to introduce the tax.
The intellectual basis for the tax is shaky. Labour sometimes refers to the special levy Sir Geoffrey Howe imposed on the high street banks in 1981 as a precedent for what it is doing now. The then chancellor imposed a one-off tax of 2.5 per cent on the banks' non-interest bearing sterling deposits. But there was a specific reason for it. In 1981 interest rates were high - a reflection of the Conservative government's monetary policy - but banks were prevented by law from paying interest on deposits held in current accounts with the result that they began accumulating super profits.
The tax had the merit of being well-defined, coherent and timely; it was levied when the windfall profits were being earned, not years later.
The windfall utilities tax can boast none of these things. But it has popular support, since the money it raises will be used to get the young unemployed into work. The utilities thought they could win the argument by depicting the levy as a tax on 12 million shareholders and 25 million consumers. Labour's landslide election victory put paid to that. The campaign against the tax was also undermined by a series of spectacular own-goals. First there were the "fat cat" headlines that greeted bumper annual pay rises culminating in the public humiliation of Cedric Brown at British Gas over his 75 per cent pay increase, and Sir Desmond Pitcher at United Utilities. The two men had a pig and a pantomime cat named after them respectively.
Then there were the huge share option windfalls directors of the National Grid and privatised electricity companies collected as they were floated on the market or scooped out of it during the frenzy of takeover bids in 1995 and 1996.
Finally, there was the apparently remorseless decline in standards that accompanied ever rising profits, most obviously in the water industry where the drought of 1995 reduced Yorkshire Water to the status of most hated company in the land as the standpipes sprang up and road tankers struggled to maintain supplies.
Now they are under attack for the lack of adequate investment in their infrastructure - whether it be Railtrack's failure to maintain the rail network or the water industry's failure to plug the leaks. Yesterday the privatised utilities, and their shareholders, discovered the cost of all that profligacy.
23 January 2015 08:00 PM
I had dinner with the pensions minister Steve Webb this week. There was a wide-ranging discussion about the new pensions freedoms starting in April, and changes to the state pension. Crucially, I also got to ask Mr Webb whether he had any plans to have another look at the injustice that is frozen pensions.
23 January 2015 08:00 PM
While the health of the economy is not insignificant, Mark Dampier finds it incredibly unpredictable in terms of its impact on the stock market
21 January 2015 12:32 PM
A new free app is aimed at the three-fifths of Brits who have never switched supplier
20 January 2015 09:34 AM
Regulator’s investigation into the market found that around £160bn was held in easy access savings accounts that pay interest lower or equal to BoE base rate
17 January 2015 12:00 AM
Simon Read: Information is power. And it's in the wrong hands when people are cold-called by companies that know they're in debt
17 January 2015 12:00 AM
In debt? You're likely to be targeted by unscrupulous companies that hope to profit from your misfortune. They may try to pretend to be your friend by offering what they call "help" – but almost certainly that help will come with a cost and leave you worse off than you were before they got in touch.
17 January 2015 12:00 AM
In less than three months' time radical changes to pensions will take effect, providing investors with more freedom. Yet for those who prefer to make their own investment decisions, the choice of funds available is overwhelming. And an income drawdown account is also not particularly easy to manage.
15 January 2015 12:23 PM
The minimum amount for which you can be forced into bankruptcy is being raised from £750 to £5,000
14 January 2015 08:55 AM
A shock report reveals that fuel poverty is affecting desperate families – and their children
14 January 2015 08:59 AM
Most people are too confused to know how to use their pensions for a secure income
10 January 2015 12:00 AM
Simon Read: Inflation is riding the slow train. So why have we been given a one-way ticket to travel on the fares express?
10 January 2015 12:00 AM
I struck a chord with many of you when I wrote a piece earlier this week about rising train fares. It seems there is an army of travellers who feel they've been ripped off by increased transport costs.
26 December 2014 02:31 PM
Poor service from banks and energy companies has sadly been a theme this year
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