Neal Lawson: A windfall fuel tax is only fair

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This week, the Government is expected to announce measures to help poorer consumers hit by the rocketing prices for energy. It should go further and impose a one-off windfall tax on the unearned profits of the energy companies – a measure which has the backing of 100 Labour MPs.

The revenues would be earmarked for two specific purposes: to cut bills for the poorest this winter, so they don't have to choose between heating and eating, and to fund a nationwide programme of home insulation to cut future bills and the carbon footprint of every household. The Chancellor, Alistair Darling, has only this weekend spoken of the pain experienced by the poor in this recession. They need government help. This is a way they could get it.

The central argument against the tax is that it would hit long-term investment in renewable energy projects. Companies want predictability, and such a tax would upset their planning. Of course companies want predictability; we all do. Pensioners want the predictability of knowing whether they can afford to turn their fire on but, with prices going through the ceiling, they don't have it. By definition, a windfall tax is levied on the unexpected and undeserved profits of companies, profits they never invested for or planned to receive.

Are those arguing against a tax now saying that they object at all times to taxing windfall profits? How high should undeserved profits go, how big should the pay and bonuses of top executives be, and how hard hit should the poor be, before we decide to act?

The next batch of arguments against the tax shows how desperate the industry is. We are told that companies will hide revenues and profits from official eyes or simply pass the cost of the tax on to customers. These are not arguments for inaction but for better regulation.

The grounds for a windfall tax on the energy companies can only be evidence of unearned profits causing direct social harm. Shell saw profits rise 4.6 per cent in the second quarter of this year, while BP saw profits up by 23 per cent in the first half of 2008. Gas prices have risen 100 per cent since 2000 and are set to rise by a further 34 per cent next year. Every 10 per cent increase in prices sees an additional 400,000 go into fuel poverty, which is set to rise to 6 million households next year.

Of course the industry cries wolf. It's their job. They exist to maximise their profits. The job of government is to look at wider social and environmental interests. In 1997 Labour raised £4.5bn from the privatised utilities, and the dire predictions of investment collapse never materialised. Obama wants a five-year tax on energy companies in the US. In Norway there is a similar annual tax. What makes us different?

No tax is popular or easy, and a windfall tax is not a replacement for better long-term regulation of natural resources that should be held in common. This paper has rightly pointed out the scandal of pre-paid meters that sees the poorest paying most. Why are new social tariffs so hard to introduce? But these measures don't invalidate a windfall tax; rather they would complement it.

We need continued investment in business and investment in people to have the confidence that they can live in homes they can heat. But people don't just want low prices; they want the warm glow of knowing that sometimes the Government is on their side.



The writer is chair of the centre-left pressure group Compass www.compassonline.org.uk

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