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It’s a windfall. Now share it logo

It’s a windfall. Now share it

Energy firms’ profits are unearned. In hard times, it is intolerable that they cash in as people go cold

Of course the CBI and the Institute of Directors warn us that a “windfall tax”, levied on the leading energy companies, would prejudice the prospects of new investment in the industry. These are the people who, 10 years ago, prophesied that a statutory minimum wage would result in massive unemployment among the lowest paid. Indeed, their lineal predecessors predicted that Lloyd George’s Insurance Act would put every domestic servant on the dole and that Lord Shaftesbury’s proposed prohibition of child labour was a prescription for economic ruin. The apologists for the excesses of capitalism have always possessed a talent for representing their greed as essential to the national interest.

The government ought to examine the facts of energy pricing with an objectivity of which the providers’ apologists are incapable. Two facts should dominate ministers’ consideration. The first is the size of energy company profits. For Shell, they amounted to £13.9bn in 2007-08 and £4bn in the second quarter of this year, a 4.6% improvement on 2007. Even the less profitable companies have reported the sort of results that make share-holders rub their hands with glee. Centrica, the owner of British Gas, is expected to make a record profit of £1.9bn this year – a 50% year-on-year improvement, a month after raising average prices by 15%.

These results are not the product of either improved efficiency or greater investment, but are largely the results of the idiosyncratic way in which energy tariffs are calculated. That is why they are legitimately described, by both advocates and opponents, as a “windfall”. The second fact is that the government needs to face up to what was revealed by the consumer group, Energywatch. About 4.5 million families already live in fuel poverty, and that figure will increase as a result of this year’s hike in energy prices.

In the present economic climate, only a windfall tax can raise enough revenue to protect those families from a cold winter. The business secretary, John Hutton, wants energy companies’ accounts to be made more transparent, so that consumers can decide where they get the best bargain. That idea is attractive to theoretical economists who believe that competition solves all problems. But it will not keep low-income families warm in winter. Nor will a revision of the carbon emission targets, which ministers are said to be considering as an alternative to a windfall tax.

It would be foolish to claim that a one-off levy – hypothecated for reducing fuel prices at the bottom of the income scale – had no disadvantages. But they are nothing like as great as the vested interests claim. It is absurd to suggest that the result would be an investment famine. There is money to be made in the British energy market – even if, for one year, profits are reduced – and the energy oligopolies will go on making it. More important, opponents of the tax need to describe their alternative. Up to now, the best the energy companies have come up with is a £150m handout available by 2011 – a fraction of their profit in three years’ time.

Let us be clear. As well as the social argument for an energy windfall tax, there is a political reason why it is essential. Not party political. I would be in favour if Labour were 20% ahead in the opinion polls. The political argument concerns the equity that ought to be a feature of tax policy. In hard economic times, it is intolerable for directors of energy companies to draw huge bonuses while their customers go cold because they cannot afford to pay the bills. It is also inimical to the spirit that sees a nation through its difficulties. That is a patriotic argument for an energy windfall tax.

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