The case for a UK windfall tax on oil and gas giants is unanswerable
The call for a windfall tax on oil and gas companies, whose profits have rocketed over the last year, has now become something of a clamour. Originally proposed by Labour a month ago, the idea has been taken up by both the Liberal Democrats and Greens, and even some Conservative MPs. Jeremy Kyle’s conversion to the cause by the climate activist Tessa Khan has gone viral.
The basic idea of a windfall tax is very simple. Over the past year the huge rise in global oil and gas prices has provided oil and gas companies with vastly expanded profits. BP has just announced 2021 profits of £9.5bn (compared with a loss of £4.2bn the year before) and Shell £14bn (a four-fold increase). If these additional profits were taxed, the revenues could be used to help reduce energy bills for hard-pressed consumers.
Unsurprisingly, a fightback has now begun. BP and Shell have been explaining the importance of their North Sea investments and their commitment to renewable energy. Commentators on the right have attacked the windfall tax as “economically illiterate”. But the problem is that none of the arguments used by opponents of a windfall tax are very convincing. There are five being widely made.
The first is that, as a retrospective measure – levied on past profits, when the companies could not plan for it – a windfall tax would be unfair, possibly illegal and certainly not the kind of thing we do in Britain. But it was actually Margaret Thatcher who first introduced a windfall tax – in 1981, on the banks, whose profits had ballooned after a rise in interest rates. In 1997, the New Labour government imposed a windfall levy on the inflated value of the utilities privatised under the Conservatives. Neither measure was ruled illegal.
The second
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