Business
Why Labour should follow its own example on a windfall tax
Published 28 August 2008
A Labour government with the confidence it had in 1997 would reclaim this unearned wealth and use it to help the poor
Maybe Gordon Brown would be under less pressure from his backbenchers to impose a windfall tax on energy companies' profits if he hadn't himself been the first Labour chancellor in Britain to introduce one, back in July 1997. It was a highly effective piece of fundraising, too, collecting more than £4bn from the utility companies that had been privatised under the previous Conservative government. The revenue from the tax was earmarked from the outset to establish a welfare-to-work programme that would generate employment, particularly for lone parents and disabled people.
Labour, newly in power, had no difficulty in getting the measure through. No Labour MP voted against; no Tory voted for it. Looked at 11 years on, it seems an astonishingly audacious first step towards making reparations to the people of Britain for the preceding 18 years of Conservative looting of state assets.
But if it was right then to relieve the utilities of their ill-gotten gains (ill-gotten because, Labour argued, the utilities had been sold off too cheaply) why is it not similarly appropriate now? Costs to consumers of light and heating have been rising rapidly. Rising even more rapidly, however, have been the energy companies' profits, up sixfold in just three years.
These unearned riches are the result not of entrepreneurial endeavour or clever management, but of commodity speculation. Meanwhile, the resulting high energy prices are knocking the poorest in society sideways. A Labour government with the confidence it had in 1997 would reclaim this unearned wealth from the top and use it to relieve the burden on the poor.
Certainly, the situation Labour faces now is different from the one faced by Brown in 1997. Then, Labour had long warned that it would be imposing such a tax. The utilities in question, the water, gas and electricity companies, were for the most part entirely UK concerns, and the system of regulation then operating would have made it hard for the utilities to pass their tax burden on to customers by raising prices.
In 2008, it is fairly argued, globalisation makes controlling the outcome of a windfall tax far more difficult. It is too easy to hide profits and business is regulated with such a light hand (for fear of frightening the multinationals) that the utilities can charge more or less what they like. And while electricity and gas tariffs are said to be governed by the much-lauded free market, it is quite clear that competition does not force suppliers in the UK to lower prices. We can easily choose the cheaper milk, but few of us can spend our days utility-hopping, and the companies know it.
A windfall tax would certainly be more difficult to implement than in 1997, but that does not mean it would be impossible. It would be cowardly of the government not to try. As Neal Lawson, chair of the campaigning organisation Compass, which has been a driving force behind the windfall tax campaign, argues on page 10, people are looking to Labour for security in the face of the worst financial crisis for decades.
The 1997 tax was a bold measure, adroitly implemented. It did not frighten capital away from the UK as the Conservatives had sternly warned it would and it raised much-needed revenue for an important social programme. Above all, it sent a clear message to voters that Labour was prepared to support the poor and not be cowed by the baseless threats of the rich and powerful.
The government has pledged to eradicate fuel poverty (defined as spending more than 10 per cent of household income on fuel) by 2016, an ambition it will now find hard to achieve. But Brown and his Chancellor do have options.
A windfall tax should be followed by compulsory increases in the contributions demanded from industry to help the fuel-poor. At the same time, regulation of the sector has to be improved. But, most importantly, revenue from the windfall tax must be used to reduce our dependence on a too-powerful energy oligarchy. We need to increase investment in renewables and energy efficiency substantially. Setting about such a programme with conviction could even remind a dispirited Labour Party of the unity of purpose it once enjoyed.
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