The truth about a "windfall tax" on the energy companies is that it would raise a lot of money and wouldn't raise much protest. After all, who is going to march on Parliament for the sake of E.On's profits? Who would be ready to dress up as Batman and stand on the roof of Buckingham Palace and defy armed police to demand "Justice 4 Centrica"? Who would riot for a raised dividend at Shell or BP?
So you can see the attractions, as can an increasing number of Labour MPs and one or two left-ish think-tanks, who have renewed their attempts to get the Government to attack our much-unloved energy companies. A windfall tax would pull in billions which could be recycled to offset higher fuel bills for the poor. It would save the Treasury the expense and, thus, help keep the lid on public borrowing.
It offers some luscious opportunities for spin, including the renovation of Gordon Brown's reputation as man of action. Mr Brown could announce the move at the Labour Party conference next month, and pose as a sort of Happy Shopper version of Franklin Roosevelt who famously promised America "action, and action now" to lift her out of Depression. You can almost hear those Brown soundbites being pounded out – "action not words... action for the many, not the few... action for hard-working families needing desperate relief... bold action... difficult long-term decisions..."
Yet, despite all its meretricious attractions, the windfall tax would be a disaster – even for the Labour Party. It would shred what little is left of the Government's reputation for economic competence and reinforce Labour's new-found, and surely unhelpful, stance as a party that will tax anything that moves. The tax would also, for what it is worth, have some baleful effects on the nation's ability to heat and light itself in the decades to come.
A consensus seems to have arisen that if big companies make an unusual profit for reasons outside their direct control, such as a boom in the oil price, then they don't deserve it. No matter that every company, at some time, like the rest of us, benefits from some sort of "windfall" or good luck. Maybe they invent a better mousetrap, or a new delicious breakfast cereal or a cure for cancer. Maybe all of a sudden everyone wants clogs rather than shoes, or smoothies instead of fizzy drinks.
In one sense, everything good that happens to a company can be classified as a "windfall", which makes a nonsense of the whole notion of a "windfall tax". Anyway, when companies make more money they pay more corporation tax. So why is a special tax needed? Conversely, when the energy firms make an unusually poor profit, or even a loss, from a reversal in their fortunes, no one ever suggests they should qualify for a subsidy.
It is not such a daft idea, and no dafter than a windfall tax. With oil at $10 a barrel a few years ago, there was a case then for the world's governments, had they been far-sighted enough, to offer Shell, BP and the rest financial aid for discovering new sources of energy, be it fossil fuels or renewables. They didn't, obviously. So now oil is $120 a barrel and the companies have got the money to invest in infrastructure and new technologies – urgently needed – yet we seek to take the means from them, choosing instead to subsidise energy consumption, often of fossil fuels. When they offer investors better returns for being in such a capricious industry, we stop that, too. Illogical, captain.
The windfall tax mentality also reveals a fundamental lack of sympathy for business and the workings of free markets. Now, you can argue about whether that is good or bad, but these were two of the stoutest pillars in New Labour's economic temple. Tony Blair, and sometimes Mr Brown too, used to tell us that the class war was over and that Labour stood for business and enterprise. As a result, they were trusted to run the economy and Labour enjoyed unusual supremacy over the Conservatives.
But what about the precedents? Much is made of the two previous British windfall taxes on business, and the parallels are worth exploring. Way back in 1981 no less a figure than Sir Geoffrey Howe, Chancellor and high priest of Thatcherism, imposed a windfall tax on the banks, at a rate of 2.5 per cent on their deposits. It raised £350m, closer to £1bn at today's prices.
We also have the obvious example of Mr Brown's first windfall tax, on the privatised utilities, in 1997 and which raised £4.5bn (a manifesto commitment, by the way, which the new tax is not). The point about these predecessors is that, insofar as they were justified, it was on the grounds that the windfall profits they targeted had come about directly as a result of public policy, and not the day-to-day ups and downs of business life.
In the banks' case, the high interest rates imposed to defeat inflation in the early 1980s – peaking at 17 per cent – gave them a "windfall" bonus on all those current account monies they held, and which they lent out for artificially high returns. The utilities' excess profits in the lead-up to the 1997 election were down to the botched way many were privatised and regulated – again a result of government policy.
There is no such mandate and no such logic for the latest assault on energy companies, many of which have never been in the public sector and which make their living in a fiercely competitive global market far away from our shores.
Once upon a time, the Tories used to chant that "dogs bark, cats miaow, and the Labour Party puts up taxes". Mr Brown, long before he reached Number 10, worked tirelessly to prove that wrong. It would be strange indeed if he were now to be tempted to discard what remains of that historic achievement.Reuse content