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Windfall tax? In your ten item policy wishlist dreams...

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Paul Mason | 11:12 UK time, Tuesday, 26 August 2008

Among the remnants of Labour activists and bloggers who have not made it to the DNC in Denver Colorado there is currently a pastime called "". Suggestions range from outlandishly left (45% income tax rate for those earning over 85k) to the outlandishly right (re-arm Britain as a conventional military superpower) - and that these two are from just one list shows what a "broad church" Labour still is.

However it is becoming clear that there is one item on all the policy wishlists that is going to have to remain in the dreams of the centre-left wonks, wonkettes and bloggers - and that is despite 80 going on 100 Labour MPs signed up for it. I speak of the Windfall Tax....
...


I was personally briefed by "sources close" to Alistair Darling that, as of four weeks ago, this was "on the agenda". Now the government says it is "not persuaded" to do it. To recap, there are in fact two versions of the Windfall Tax doing the rounds: that advocated by the Energy select committee/ pointed to by Ofgem which targets the £9bn windfall profits made by the gas companies out of carbon trading. And that advocated by the TUC, Compass and by the end of today probably close to 100 Labour MPs, which is a tax on windfall profits accruing from alleged profiteering on the back of wholesale price rises, and will target oil as well as gas giants.

The centre-left think tank Compass has played a blinder tactically, by commissioning a poll, getting it run in the on a quiet weekend and then letting the momentum gather among Labour constitutency parties and MPs way beyond its own sphere of influence (which will probably now have to be recalibrated).

I am told there will be a demand for a meeting with Brown/Darling and that the pro-Windfall lobby will present them with "economists and experts" to put the case. Meanwhile the policy will become a rallying cry at the TUC and then a "contemporary motion" at Labour conference three weeks later. However by then I fully expect the shape of the government's economic rescue package to be clear - possibly in the form of a "prime ministerial" initiative. And I do not now expect the Windfall Tax to be in it (or Stamp Duty, or the Crosby Report's proposal to underwrite the mortgage industry).

One interesting aspect of the Compass/Yougov poll was that while(actually Compass seems to be one man in a small office) have tried to pitch this as a measure generating an investment fund for green energy, most of poll respondents simply want to kick the energy companies in the goolies for the high prices.

I think it's unlikely Brown and Darling will be persuaded, for the simple reason that it is not demonstrated that a Windfall Tax solves anything. Fuel poverty is going to hit 6 million homes (check that out: 6 million homes means a lot more people are actually going to be officially "poor" from now on). You can't compensate for that by just by seizing a year's worth of profits of the oil and gas majors. In addition there is the question "what is to be taxed". Shell's sources close point out that the company is registered in the Netherlands. It of course pays very hefty tax on its operations here - but it's bank account, if it is to be raided, is abroad. The word "Dublin" is, I am told, looming large in the mind of Alistair Darling's energy advisers right now, next to the word "Centrica".

Less flashy than a windfall tax would be getting Ofgem, the regulator, to adequately perform the function which a market cannot. Let's look at an example: all over Britain people are switching from Waitrose to Tesco, Tesco to Aldi, Pizza Express to Macdonalds, Biarritz to Tenby in a VW camper - that is they are downsizing what they spend and going with what seems competitive.

But at privatisation the gas industry could not be freed up so that such competition offers a low-price option. Indeed when the select committee looked at the gas market it found that, ahem, companies seeing a large outflow of customers switching to cheaper offers did not respond with their own price cuts. That is the market, bluntly, does not work. Ofgem has, after years of insisting there was nothing wrong, roused itself to launch a "probe", which will duly report this autumn. In the meantime few consumers can see real and meaningful competition between gas providers.

IN addition, as long as the European wholesale gas market works in a way that punishes the UK for having the most liberalised energy sector high oil prices are going to mean high gas prices and the laws of supply and demand are going to be skewed in all kinds of ways.

One perfectly rational response to that situation would be to subsidise home energy bills, cap prices through new legislation, or even to renationalise the gas industry. After all, this is what is effectively happening with British Energy in the drive to build new nuclear: a formerly nationalised strategic company, which cannot generate its own capital spend at the scale required, is to be taken over by the 85% government-owned EDF (except that the government is the French government so it does not sound like nationalisation).

If the private sector can't build the new energy infrastructure the government insists we need, maybe the government should do it? What is interesting - watching the Labour centre-left come out of its chrysalis - is how almost none of the "top ten policy" lists even consider renationalisation, presumably because of its Old Labour/far left taint. Yet as energy moves out of the realm of profit/loss economics and into the twin realms of saving the planet and removing Russia's strategic leverage over Europe the dilemma remains.

If Britain wants a new nuclear power sector, sharpish, plus clean coal technology - and if for a variety of reasons the market cannot provide the diverse, green and secure energy mix the country needs - other than at a cost which cripples consumer spending among the bottom 50% of income groups (and remember we haven't even started to feel the effect of those 35% price rises yet)....the alternatives seem to me either a completely competitive market introduced by force by a hefty regulator, or some form of public ownership.

Hit the comment button?! And send me your top ten wish lists

Comments

  • Comment number 1.

    typical lefty windfall tax that only panders to an emotional need to 'punish' private firms. Such a tax doesn't help me paying the gas bill.

    A regulator who understood what the gas price is really doing would and had the power to prevent the price rises hidden behind smokescreen words. e.g why did British Gas recently post a leaflet to householders explaining price rises with a gas graph that ended 12th july [at the height of the spike]. the gas price sank like a stone since then.

    the only thing this wish list signifies is that the fag end of this govt will be spent fighting the left ?

  • Comment number 2.

    My Top Ten (in no particular order)

    1. Natural monopolies should be state owned (i.e water, electricity, gas, telephone ) That should raise a few responses! Build the necessary infrastructure.

    2. Stop fiddling the National Accounts - PFI/PPP financed expenditure should be on the books as borrowing. (That should put a stop to the hugely expensive and daft financing of the National Debt.)

    3. Nationalise the railways and build more of them - start by reinstating all of Beeching's cuts (demolishing property built over the tracks if necessary.) This should also restore a rational ticking system.

    4. Punitive tax on gas guzzlers - £10,000 a year RFL on every car over 175 g/km! Cut fuel duty to compensate - make it revenue neutral.

    5. Living value social benefits, pensions etc.

    6.75% income tax on all incomes over £200,000 a year.

    7. Annual Wealth Tax on all estates valued at over 10 million. (Whole World valuation payable if the person spends more than 20 days a year in the UK or owns directly or indirectly (via family or tax havens) any property.)

    8. Proper funding of domestic energy saving grants (also do something for homes with solid walls - i.e. pre WW2 homes.)

    9. Regional Government - England South - England North plus the existing nations - abolish the Commons and let the local administrations have no more than 25 elected members. Get the Civil Service out of London. Have a very small federal UK government directly elected with a statute of limitations (no more than 2 x 4 year term.)

    10. Join the Euro!

    You did ask the question!

  • Comment number 3.

    #2 correction of typos!

    3... ticketing system! (Most places I have recently tried to buy a return ticket to simply do not have returns at all!)

    To remove the question mark character as in ? read as GBP or if using Firefox View>>Character Encoding>>Western.

  • Comment number 4.

    THE TAO OF TEN

    (1) Recognise the PSYCHOLOGICAL wellbeing of Britain as the primary measure of good governance.
    (2) Restore motherhood as a prestigious state.
    (3) Give the years between birth and puberty over to nurture for 'secure attachment' and self esteem (not Mammonising).
    (4) During 3, apply broad observation and testing to detect subtle incapacities and any neglect or abuse.
    (5) Recognise all forms of institutional 'child-parking' as second-best to nurture in the family.
    (6) Recognise criminality as, primarily, a failure of the state in applying 1 - 5.
    (7) Allow only locally established individuals to stand for Parliament.
    (8) Re-configure politics to favour consensus over party jousting, with the ultimate aim to eliminate parties.
    (9) Only MPs who have undergone depth psychoanalysis should be eligible to become PM.
    (10) Ease away from the corrosive EU, and aim to make Britain, by default, a quietly competent example to the world.

  • Comment number 5.

    It never ceases to amaze me how thick our (Labour) politicians are. Who pays the tax? The companies? And where do the companies get their income? The customers? And what happens to the customers' bills? They go up to pay the tax. Good grief.

    And if the Govt had invested in Nuclear, then we wouldn't have this dependancy/cost problem.

  • Comment number 6.

    ....And if the Govt had invested in Nuclear, then we wouldn't have this dependancy/cost problem...

    80 billion clean up costs for nuclear is a big tax problem.


    a 2 way grid like in germany is the future.

  • Comment number 7.

    NATIONAL PSYCHOLOGY

    We have Child Psychology, Sport Psychology
    and a bunch of other psychologies but any appreciation of the study of the psychology of nations, seems lacking - at least in any applied form.
    Could it be that politicians, being dysfunctional almost by definition, do not care to have recourse to a discipline that would illuminate their strange needs and foibles?
    Whatever the truth of it, anyone who has experience of children will see the parallels where nations are concerned. Once again we are spectators to the 'Oh yeah? - Yeah!' of states with more arms than sense, squaring up to each other; totally unable to rein in their primitive emotions.
    Will Gordon feel the need to declare support, to show himself as 'good a man' as Tony? We don't need another hero.

  • Comment number 8.

    Top ten in no particular order as previous contributors have stated:

    1) Recognise my car as being green... 20yrs old Passat 60mpg.

    2) All utilities should be nationalised. How can it be justified to allow overseas punters to make money from our water, gas electricity, POST, etc.

    3) Stop cadging silly educational ideas from Americans, who lets face it can hardly speak American, let alone teach us anything better than 'rap' and 'texting'.

    4) Create a new political party called 'The Mandate Party', whose spending actions are directed by regular public vote.

    5) Give footballers no more than £100,000 per year salary. [Bet they can't get that in 'civilian life'] Let Europe follow suit. Local football or Rugby or any other local team sport must contain at least 75% people with links to the locality.

    6) If MP's lie or sail so close to the limit of the 'spirit of the law,' to be removed from office, just like 'real' employees.

    7) Stop insurance companies demanding tree removal on pretext of a few hair roots possibly causing subsidence. Demand for every tree that needs to come down 5 have to be planted somewhere else.

    8)All subcontractors working on roads to be made responsible for the subsequent subsidence for 5 years.

    9)Research more into green energy, but also stop lieing about the global warming catastrophe, the global cooling effect of global warming, the wet effect of drought. The Met cannot tell me tomorrows weather accurately enough to distinguish between wet and dry. Yet the sheep believe that there has been a change of 0.25 deg C in 100 years. Not statistically significant IMO.

    10) Finally but not leastly, lets allow a recession! If house prices come down, then this is the only way to help first timers gain a foothold without some newfangled form of debt sandwich. Recent purchasers will be forced to stay put and communities will stabilise, get to know each other and generally reform as they were in the past.
    Less Co2 will be produced as life quietens down, with a reduction of extravagence and waste.
    Rant off :o)

  • Comment number 9.

    A first wish is for media people and the public to stop thinking that the Government is acting in the public interest but just getting it a bit wrong!

    A lot of people would like to see public services and utilities renationalised. It's pretty clear that the old 'competition ' and 'choice' story just leads to monopolies and cartels. Basically, it was a trick.

    But can renationalising happen? It is completely in the opposite direction of the global push to liberalise.

    How free is our government to do that, against the wishes of global capital? After all we are the star turn in being the 'most liberalised' state in the EU.

    And, importantly, how deep are we already into the sorts of international trade commitments that actually prevent any reversals?

    Only people in the media can ask these questions, of the Government, in front of the camera.

    Yes, your country needs you.



  • Comment number 10.

    On the question of a windfall taxes, what bewilders the people is that high level of profits has been announced in the same time frame as huge increases in charges. The people have turned against utility providers in general and energy suppliers in particular because they feel they are being ripped off. The argument is, if the providers do not exercise price restraint the government should punitively tax them and give the money back to the people.

    The problem is, of course that they won't. If they do decide on a windfall tax, the money will go straight into the Treasury coffers, presumably to reduce public borrowing and give the entirely false impression that the government has economic policy under control.

    A windfall tax will throw energy companies' investment plans into disarray and benefit the tax payer not one jot. What was needed was price restraint imposed by the regulators and it is too late for that.

  • Comment number 11.

    Wish List:

    1. An English parliament.
    2. A federal system.
    3. Proportional representation.
    4. Reduction of unaccountable quangos.
    5. Restoring personal privacy.
    6. Reduction in unnecessary data retention.
    7. A total ban on government held data being carried on portable devices or used outside work premises.
    8. An end of all mandatory sentencing.
    9. Set a date for joining the Euro.
    10. A general election before October 2008.

  • Comment number 12.

    I'm sure the observation of "poll respondents simply want to kick the energy companies in the goolies for the high prices" is correct. It doesn't mean they don't deserve it.

    1. Dump ID cards and the associated national database
    2. Economically - stop focussing on the size of the economy as a whole and instead on GDP per head
    3. Create a measure of inflation that represents the fundamental things that people have to buy to live. E.g. Housing, Travel, Tax, Utilities, Food. Not DVD players and ipods.
    4. With the above identify a minimal amount people can realistically live on, set 125% of this as the base tax-free level.
    5. People who live together can use each other's allowances, i.e. if only one of a couple works they get twice the tax-free amount
    6. Combine NI and Tax. Find a flat rate figure.
    7. Recognise that taking money off people just to give it back to them is clearly wasteful.
    8. Remove VAT on energy saving/generating products. E.g. loft insulation, solar panels, energy saving light bulbs, etc
    9. Recognise that markets on utilities aren't working well and investigate ways a market could be better made to work.
    10. Stop companies that are one company appearing as many. (To better highlight to us the lack of competition in certain markets)

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