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

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

SQL Technical Implementation Consultant (Java, BA, Oracle, VBA)

£45000 - £55000 per annum + Benefits + Bonus: Harrington Starr: SQL Technical ...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Lead C# Developer (.Net, nHibernate, MVC, SQL) Surrey

£55000 - £60000 per annum + Benefits + Bonus: Harrington Starr: Lead C# Develo...

Day In a Page

Read Next
 

i Editor's Letter: Still all to play for at our live iDebate

Oliver Duff Oliver Duff
 

The leak of Jennifer Lawrence's nude photos isn't her fault. But try telling that to the internet's idiots

Grace Dent
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor