Leading article: A windfall tax is an easy solution – but a wrong one

There are several better ways to respond to soaring energy prices

Share
Related Topics

When governments are in trouble they are especially keen to score easy political goals. And several voices around ministers believe they have identified one. The eye-watering price increases announced by British Gas this week have stoked concerns about the number of people being pushed into "fuel poverty". And the high profits of the energy producers, including Centrica, which owns British Gas, have raised popular hackles at a time of downturn for just about every other sector of the economy.

The solution being pushed in Westminster is for the Government to impose a windfall tax on energy producers to pay for a sweeping programme to subsidise the energy bills of the poor. It is certainly a neat solution, but Gordon Brown should, nevertheless, resist the temptation to go down this path.

This is not to argue that British Gas and the other energy suppliers are models of fair dealing and upright capitalism. They were suspiciously slow to cut customer prices when the global wholesale price of energy was low a few years ago, but have been very quick to pass on the costs now that the market price of gas and electricity is rising. This raises serious doubts regarding the competitiveness of the energy sector post-privatisation. Yet there is no clinching evidence that these firms are profiteering from soaring global energy prices. The profits of Centrica are actually declining, despite its increased revenues from the North Sea's gas and oil fields.

And the windfall tax is inadvisable for other reasons too. Perhaps the most significant is that it would be counter-productive for the long term national interest. A windfall levy would produce revenue for a cash-strapped Treasury, but it would send a dangerous message to the energy production sector. Producers need consistent tax signals from governments if they are to invest in long-term projects in a rational manner. The imposition of unpredictable taxes would be likely to deter investors from putting up the cash for the renewable energy projects that Britain so urgently needs.

There are other ways to get the energy companies to behave better to customers. As the Liberal Democrat Treasury spokesman Vincent Cable has argued, there is a good deal that could be done on the regulatory front. A good place for the Government to start would be by addressing the scandal of pre-payment meters, which end up charging the poorest customers a particularly high tariff.

That is related to another important, and often missed, point. As with soaring gasoline prices, the high price of electricity and gas should be a signal to all that we need to do more to conserve our use of power in our homes and business. No one disputes that there is a need to target some financial relief at poor pensioners who will find it a struggle to heat their homes this winter. But we cannot afford to lose sight of the fact that a huge amount of energy is wasted through inadequate insulation in our buildings.

If ministers want to take the right long-term decisions for the economy they should demand that energy companies roll out smart meters, to show each household clearly how much energy it is consuming. It should also get on with working, through the European Union, to liberalise the continental energy industry, which should help ease prices over time.

A domestic windfall tax will be heralded as an easy score. But, in time, it could very well be seen as a lamentable own goal.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Customer Service Executive

£18000 - £22000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Retail Buyer / Ecommerce Buyer

£30000 - £35000 per annum: Recruitment Genius: Working closely with the market...

Recruitment Genius: Sales Executive - CAD Software Solutions Sales

£20000 - £50000 per annum: Recruitment Genius: A reputable company, famed for ...

Ashdown Group: Client Accountant Team Manager - Reading

Negotiable: Ashdown Group: The Ashdown Group has been engaged by a highly resp...

Day In a Page

Read Next
 

Letter from the Education Editor: This shocking abuse of teachers should be taken seriously

Richard Garner
Brand loyalty: businessmen Stuart Rose (pictured with David Cameron at the Conservative conference in 2010) was among the signatories  

So, the people who always support the Tories... are supporting the Tories? Has the world gone mad?

Mark Steel
War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?