The politics of an energy Windfall Tax
I'm getting various emails from Compass promoting a Windfall Tax on energy companies. They seem to be still using the Barack Obama branding ("Windfall tax: yes we can!") not having realised that having postured as a radical to win the primaries, their hero is thankfully now triangulating away like an old-school Clintonista.
There are starting to be some sensible names of people whose opinions I take seriously on the policy's supporters list though (Stephen Twigg, Khalid Mahmood, Geoffrey Robinson, Paddy Tipping) so my mind is not entirely closed to the concept.
However, I am still not persuaded on the merits of the policy:
- has there been a profit "windfall"? - surely energy prices have gone up partly because it is more expensive to get oil and gas out of the ground/sea as the easy to reach stocks dwindle, not just because of rising demand
- how do you stop the companies passing the cost of the tax straight on to customers?
- why would we want to decrease the capital reserves of energy companies at the exact moment we are begging them to make capital investment in very expensive new nuclear power stations, clean coal technology and wind, wave and whatever else? Won't they just walk away from the British market muttering that they are running businesses not piggy banks for the Government to raid?
- why is profit incurred by energy companies specially worthy of a windfall tax as opposed to profit made by any other kind of company - why this rather than a windfall tax on lawyers at times of heavy litigation, on toy manufacturers at Christmas or a windfall tax on food companies and supermarkets to subsidise food for people hit by rising food prices? (NB to Compass these were not real ideas before you launch campaigns based on them!)
As for the politics of it, I'm afraid that any kind of new tax gives ammo to the Tories. The public won't necessarily clock that it is a tax on businesses, not them, when Cameron's PR people add it to the list of X hundred alleged stealth taxes.
The presentation of the concept has been all wrong and reflects the prejudices of its soft left originators.
They've consistently and consciously chosen to badge it up as a "Windfall Tax", then added almost as an afterthought "for social & environmental justice".
A more politically savvy approach would have been to call loudly for a "Fund to combat fuel poverty" and then quietly added "funded by a one-off Windfall Tax on energy company profits".
This leads me to suspect that the originators of the policy (not I hasten to add the supporters I named above) are motivated less by the thought of helping poorer energy consumers and more by the chance to burnish their radical anti-capitalist credentials by giving business a kicking.
We spent the best part of 20 years persuading the business community and more importantly voters who own shares themselves or through their pension schemes, or work for private sector businesses and depend on their profitability to a) keep their jobs and b) fund public services through all the existing streams of taxation and c) fund their pensions, that Labour was not anti-business. This wasn't just a Blairite campaign - remember John Smith and Margaret Beckett as Kinnock's Treasury team going on the "prawn cocktail offensive" to try to reassure the City. We throw away that hard-won credibility at our peril.
With the economy teetering on the edge of a recession do we want to take an axe to the profitability of any sector in the economy? I thought most Compassites were Keynesians - I don't remember from my first year economics lectures from the now Dr Roger Berry MP that raising taxes was a Keynesian response to economic bad times.
I'm just reading Bernard Donoughue's fantastic memoir of his time as Wilson's Head of Policy at No10, "The Heat of the Kitchen".
Talking about Labour in the 1970s he says:
"The activists were disenchanted with the polls because the polls showed the electorate was disenchanted with them. The left preferred to believe that they alone knew what the electorate wanted, and certainly what was good for the public - which they saw as a strengthened diet of state nationalisation, intervention and controls over industry and the lives of ordinary people, together with fiscal punishment for anyone who had the impertinence to pursue success in the private sector."
I worry that Compass, like their 1970s antecedents, are primarily looking for ways to, as Donoughue puts it, administer "fiscal punishment for anyone who had the impertinence to pursue success in the private sector".