Windfall taxes are nothing new. Margaret Thatcher’s government was one of the most notable users of the tactic – with one-off levies on banks and oil companies for making excess gains in the early 1980s. Perhaps the fact that such duties find favour with the public surprises some who think economic populism is passé. But with gas prices trebling and the bosses of fossil fuel companies proclaiming “cash machine” profits, surely Labour’s Ed Miliband is right to call for a one-off increase in corporation tax on North Sea producers to fund lower bills for consumers.
Big oil’s claim that it is paying its fair share to the Treasury is not credible, given that handouts from the state have often actually exceeded the tax take that the industry generates. Between 2018 and 2020, Shell and BP, which together produce more than 1.7bn tonnes of greenhouse gases a year, paid no corporation tax or production levies on North Sea oil operations and claimed tax reliefs of nearly £400m.
Such firms say cash is needed to transition away from fossil fuels. Yet since 2016, BP has spent just $3bn (£2.2bn) on clean energy investment, against a whopping $84bn on oil and gas exploration and development. Some critics of windfall taxes argue that reducing profits would hurt pensioners whose payouts depend on dividends from big businesses. Mathew Lawrence of the Common Wealth thinktank says this is no longer true. He points out that the proportion of UK shares directly held by UK pension funds fell from almost one in three in 1990 to fewer than one in 25 by 2018.
A windfall tax is not part of Rishi Sunak’s plans, but he could embrace it before his spring statement on 23 March. Unfortunately, the chancellor seems more intent on currying favour with climate sceptic Tory MPs. Reports say Mr Sunak is pushing for more North Sea oil and gas fields to be given the green light. Producing more hydrocarbons at home doesn’t increase our domestic energy security because the product is exported to international markets. One answer would be to nationalise production – but Tory MPs are unlikely to welcome such a policy.
Britons are alarmed by global heating. Yet Conservative politicians jockeying to take over from Boris Johnson have a different electorate in mind: the elderly, rightwing Tory membership. Mr Johnson’s would-be successors should not sacrifice net zero targets meant to stave off planetary collapse for personal advancement. Many people appear to think companies are using the energy crunch to charge exorbitant prices and gouge earnings. To protect consumers, politicians should crack down on profiteers. To protect the planet, they should transition the economy away from carbon-based energy in favour of green substitutes. Both policies could be combined if firms were forced to pay for frying the planet. But there will be an electoral price for doing nothing.