Alan Duncan attacks windfall energy tax as "socialist hatred"

The FT Westminster blog notes that the Tories have broken their silence on the increasingly heated debate within the Labour Party about a windfall tax on the energy companies.  Alan Duncan, Shadow Business Secretary, rang the FT and said:

“Whipping up hatred is not a good basis for fair taxation. What matters more than retrospective taxation is properly working competitive markets, which is what [the energy regulator] Ofgem is there to bring about... We are seeing old-fashioned socialist hatred converting once again into high taxation.”

Matthew Sinclair set out the case against a windfall tax over at the TPA blog:

1. Energy companies are not responsible for massive increases in prices: "Another reason that prices are going up is that the government are putting in place new charges and regulations such as the European Union Emissions Trading Scheme, the Renewables Obligation and the Climate Change Levy... The Government could reduce prices tomorrow by scrapping some of these ineffective regulations."
2. Energy company profits aren't necessarily the result of collusion or exploiting hard-pressed consumers
3. Windfall taxes discourage investment: "Imposing a windfall tax sends a message.  It tells business that if they make important investments, that need to pay off with substantial profits later on, we will punish them for it.  We might try and convince them that the windfall tax is just a one off, and future investments won't be punished for being useful, but they have no good reason to believe us."
4. Windfall taxes encourage fiscal irresponsibility: "If the Government increases spending to make use of the revenue from a windfall tax, or fails to take action to plug ongoing gaps in the public finances, then they have stored up fiscal problems for the future - once the windfall is spent."

Read Matt's full post here.  Also worth reading is this post at Comment is free by Deborah Hargreaves.  She is also worried about the investment effects of a windfall tax, too: "Already companies are grumbling about the difficulties of building power stations in Britain where they face long planning wrangles, little state help and environmental protests. Add an arbitrary levy to those drawbacks, and the UK becomes even less attractive for international investment dollars."

Comments

[David_at_Home]

A windfall tax on their profits will certainly not encourage the energy companies to invest in the new capacity that this country so desperately needs.

Anyway, the government has already received a massive windfall of tax take due the increase in price of North Sea oil. I wonder what they are spending this on?

[Umbrella man]

Alan Duncan is right on this one issue but it's more urgent that he tells us what the Conservatives are planning to do about Britain's looming energy crisis...

[Iain Murray]

Well said, Alan Duncan. Very encouraging language.

[Norm Brainer]

"Alan Duncan is right on this one issue but it's more urgent that he tells us what the Conservatives are planning to do about Britain's looming energy crisis..."

Well if they say they won't place a windfall tax on the energy companies, "not make it worse" is a good start on a plan to deal with the crisis that draws exponentially nearer every time someone from labour opens their mouth.
Conservatives can make all the plans in the world but they will only have to remake them to deal with the scorched earth first.

[David Sergeant]

Am I the only person who thinks that a windfall tax being imposed just when Brown wants energy companies to invest in windmills and new power stations is not just silly it is raving mad and could be an important contribution to the lights going out in 10 years time?

[Malcolm Dunn]

I think Alan Duncan will have to do much better when he spells out why a windfall tax will be totally counter productive.
I don't think 'social hatred' etc will resonate well with poorer people struggling to cope with the exhorbitant price rises they are going to have to endure.
The sad facts are that a windfall tax now will probably make bills worse in future and a resultant lack of investment now will make us even more reliant on imports.

[brian]

More nukes

What I want to see is more nuclear with reactors being built on sites where the waste can be safely disposed without moving it off the site. Ideally, build the reactors underground because an actual reactor is not all that big. If they were built in salt mines the waste could be stored locally (the salt stayed there for 30 or 40 million years so the waste should be safe enough).

Ideally the reactors would be built in pairs with a conventional reactor in the pebble bed configuration (not water needed) and a fast-breeder reactor to process the expended fuel from the conventional reactor back into more fuel which can go back into the conventional reactor. Thorium (far more common than Uranium) can also be used in such a set up.

More tidal power

As well as that, start making use of tidal barrages which could generate a large percentage of power.

Reduce wasteful consumption

Finally, reduce the need. Outlaw incandescent bulbs and other wasteful lighting. 40% of our electric is used to create light. Stop lighting up buildings at night, require timers/motion sensors to switch of lights in empty buildings at night and start switching street lights off after one a.m.

[John Broughton]

I'm not sure that it is made clear in this extract or the full article (which I confess to not having read) but the government's tax take is already 2/3 times corporate profits which, in relation to turnover, is a very small percentage.

One of my friends, elected to a devolved assembly (C), made a public statement in support of a windfall tax and, despite my challenge, still thinks he is right. Windfall taxes are left wing policies and we should not support them. Unfortunately the devolved assemblies have seen many of our elected representatives lurch to the left.

Some of the Welsh media queried if our Welsh manifesto was to the left of labour.

Windfall taxes are plain wrong.

[Hard-working activist]

My God!

Duncan says something I can agree with!

[David Cooper]

I surely cannot be the only one to feel that "windfall tax" is a thoroughly misleading phrase, straight out of the same lefty lexicon that would describe a subsidy as an investment. How can the description "windfall" - understood by the ordinary man in the street as an unexpected bonus brought about by force of nature with no one losing out as a result - be applied to an arbitrary confiscation at the whim of government which in the present case would harm customers, shareholders, and employees of the affected companies as well as taxpayers generally in the long term as a result of profits not being applied where those companies would wish? "Vulture tax" springs to mind as a better description - any other suggestions?

[Teesbridge]

The only merit I can see in a windfall tax on utilities is the same one as the last time; the shareholders are mainly non-British.

Last time, the privatised electricity supply companies had been sold to Joe Public, re-sold to dumb Americans, and were then walloped by the Treasury. Now, the casualties have been hoovered up by Continentals who will be creamed by the Treasury and may well give up, selling the distressed assets to...?

Well, some judicious re-nationalisation in 2010/11 (to be helpful, obviously, after everything those naughty socialists did to you...) might prime the coffers for 2014.

Don't tell me the City hasn't war-gamed this already.

[Andrew Morrison]

The actual volume of profit which these companies are turning may sound extremely large to those who do not understand business - particularly so for the Labour backbenchers who are still living in the 1970's.

What they neglect to remember is the volume of capital employed to return such level of profits. The size of these utility companies is mammoth, and the level of profit after taxes and interest payments to service finance is actually rather small in comparison to the sheer value of the shares in issue - which some of you may know better as the market capitalisation.

When you look at the nitty gritty of the accounts of Centrica, and nPower's parent company, things are looking bad for them.

Centrica's interim account to 30 June 2008 show for every £1 of domestic sales they have in the UK, only 4.3 pence is retained as net profit. The other 95.7 pence is spent on overheads, supply and distribution costs, taxes etc. This 4.3 pence then must be reinvested into the company, as well as pay dividends for shareholders. I should add for the same period last year it was 15.2 pence, so a big drop there.

Most of the public do not hold shares personally, however they neglect to remember that their pension funds DO have shares in big companies like these, and if people want their pension fund to grow these companies must earn some kind of profit and pay some kind of dividend of a reasonable proportion of the original sum invested.

To cut a long story short, if Centrica was prepared to wipe out all of it's profits, it could only afford to lose 4.3% of it's sales - that is a 4.3% cut in the price of domestic supplies.

If they were a nationalised company, without the profit motive, they would have a higher cost base therefore higher prices, or a huge deficit which would be paid for out of tax... meaning we would still be paying more than we do now.

It's about time Labour learned some business basics and came into the realities of the 21st century. Things cost money, and looking at many of their MP's backgrounds - mostly careers dominated by politics or public sector - this is a fact they never learned. We put a windfall tax on struggling companies like Centrica, then we are crippling a market already in dire straits, as the massive drop in profit margin of Centrica shows.

This is more something Alan Duncan had to do, if not chose to do.

[Andrew Morrison]

Oh, now Labour have had a bashing now the turn of the Scottish Nats and the Liberals... if we built a new generation of nuclear power stations we could supply more of our own energy requirements at a more stable price, as we wouldn't be as dependent on Eastern European imports.

[Eveleigh Moore-Dutton]

It is a bit rich when the government lambasts the energy companies all the while the proportion of tax on road fuel that the government takes is far greater than the amount that goes to the countries that produce the stuff, the shippers, the refiners or the forecourts put together!

[Jill, London]

Well said, Alan Duncan – but why just pick on this suggested “windfall tax” as an example of “old-fashioned socialist hatred converting once again into high taxation.” This attitude may seem “old-fashioned” to Conservatives, but it’s never gone out of vogue with the Comrades – and forms part of their ideology.

And well said – David Cooper – the phrase “windfall tax” is certainly straight out of a Lefty lexicon along with “investment” meaning throwing taxpayers’ hard-earned money at public services without checking if it will improve anything. Whilst liking your suggestion of “Vulture tax”, I’d suggest “Thieving Magpie tax” as this summates this current maladministration.

And – thank you, Eveleigh Moore-Dutton – for reminding us about the Comrades’ two-faced ability to tax petrol with one hand [as it were] whilst blaming others, and claiming it is a situation beyond their control. I think the current rate of exhorbitant tax on petrol is 80%. Is that “fair” [to use a favourite Lefty word”? NO!

[Stewart Geddes]

Don't think I've ever agreed with Alan Duncan. There's always a first time though and on this one he is absolutely right.

We've already had one pension crisis brought about by Gordon Brown. Are we to have a second?

[ChrisD]

"Well said, Alan Duncan – but why just pick on this suggested “windfall tax” as an example of “old-fashioned socialist hatred converting once again into high taxation.” This attitude may seem “old-fashioned” to Conservatives, but it’s never gone out of vogue with the Comrades – and forms part of their ideology."

Totally agree Jill! David Cooper hits it on the nail when he says that "I surely cannot be the only one to feel that "windfall tax" is a thoroughly misleading phrase, straight out of the same lefty lexicon that would describe a subsidy as an investment."

If Alan Duncan and his colleagues destroy the myth that this is some type of Windfall instead of just another stealth tax that we will end up paying for later then they are doing their job.
Check out Roy Hattersley's article in the Guardian online.
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"
Unbelievable, until you realise that is why he and his ilk did so much damage to our country back in the 70’s. They count the pounds going into the treasury, simple seeing these companies as an never ending cash cow, with never a thought to the sheer cost of producing the oil and gas. They have never run major companies which need to invest vast sums to keep the supply online.
But then, they have never served in the armed forces so therefore cannot comprehend why their lack of investment has brought the Military to breaking point.

[John Moss]

Teesbridge, you are so wrong.

The energy companies which this would be applied to are mainly owned by pension and investment funds where my - and probably your - pension contributions, ISA savings etc are deposited.

Brown's famous "raid" on the pensions industry in the late 90s was done by reducing the value of the dividends they recieved - dividends are the profits of a business paid out to the shareholders and if they are reduced by a tax or a reduction in reliefs from tax paid, (same thing in reality), then we all suffer.

We have a profligate Government which failed to plan for and invest in energy security. They could find the money for tax breaks if they cut down on waste. Scrap the star ratings and target systems, sack 3-400,000 civil servants and about £12bn a year can be saved.

[London Tory]

Firstly, Labour made no mention of a windfall tax in its 2005 election manifesto.

Secondly, our approach should be to the hammer the line that this is little more than a desperate attempt by Labour MPs with small majorities to buy their seats.

Look at some of the names on the last EDM- Rob Marris, Lindsey Hoyle etc, all Labour lobby fodder who can expect to lose next time.

[Edward Huxley]

According to the Telegraph today Minister Hutton has ruled out a windfall tax. Anyway, the companies could forestall this by crediting the customers who created these excess profits for them in the first place.

I wish Mr.Duncan would say whether he approves of the subsidy being paid to the wind farm companies who want to put these useless and unsightly monstrosities over our countryside and around our coast.

If we don`t start building coal fired and atomic powered stations soon we shall be sitting in the dark.

[Norm Brainer]

"these excess profits"?!