The clamour for a windfall tax on energy producers and suppliers will become ever more shrill after Ofgem’s boss cautioned that the energy price cap would have to rise by as much as £830 per household in October. This would lift the price cap to £2,800 for millions of households.
Testimony from the regulator’s chief executive Jonathan Brearley before a Commons committee was enough to send over-excitable Lib Dems into paroxysm with a call for a Cobra meeting and declaration of an energy emergency.
The Government, which nobly has been holding out against a windfall tax to help bail out hard hit consumers, is weakening.
Blow to investment: The Treasury is reportedly preparing a £10bn tax raid on the big six energy suppliers including Scottish Power, E.ON and EDF
The Treasury, which likes nothing better than raising taxes, is reportedly preparing a £10bn tax raid on the big six energy suppliers, including overseas owned Scottish Power, E.ON and French state-controlled EDF.
The latter is a huge investor in the UK, building the super-nuclear plant at Hinkley in Somerset and is also backing a new atomic power station at Sizewell.
There is nothing that the Treasury and the Chancellor Rishi Sunak seem to like more than increasing the tax burden.
Among the major Western economies, the UK is the only country which is seeking to restore the public finances in the face of a cost of living surge and the war in Ukraine.
Taxation, as a proportion of national output, is already at its highest level since the late 1940s and the Queen’s accession to the throne in 1952.
A great act of hypocrisy by the Labour Party is its current social media campaign deploring Tory high taxation while at the same time advocating a windfall levy.
How the lessons of 1997 have been forgotten when, on the advice of audit firm Arthur Andersen, a £5billion windfall charge was imposed on the energy suppliers.
The result was that US investors in British generators and distributors of power fled the country, leaving behind an industry weighed down by debt and unable and unwilling to invest in the UK’s energy future.
The situation is even more critical in 2022 because the need for new investment in wind farms, hydrogen, fuel cells, gas storage and insulation is acute, and all that a windfall tax would do is destroy a greener future.
All the grand ambitions set out by Boris Johnson’s government at Cop26 in Glasgow just six months ago would be as dust.
The bigger question the Chancellor and the Government should be asking is whether any new taxation at all is necessary.
Sunak should take a leaf out of the Government playbook earlier this year when it pressed ahead with easing restrictions in spite of yelps of protest on opposition benches.
The public finance data for April, the first month of the new tax year, illustrates why there is no need to blunder into higher taxation. Receipts are up 20 per cent, way ahead of inflation, rising by £121million to £729million.
Analysis by accountants Blick Rothenberg shows that corporation tax receipts are 30 per cent higher, Stamp Duty Land Tax 60 per cent higher than expected and so on.
This, together with surging national insurance and income taxes (the result of near full employment), should be incentive to ease the burden of tax.
There is plenty of cash in the coffers to soften the pressure on family budgets without bludgeoning the energy suppliers.
Requiring the energy distributors and producers to commit ‘excess’ profits to lowering the bills for the most stressed households would be a far better approach.
Instead of reaching for the tool of new levies, the Treasury should make sure that welfare payments, intended for the least well off in society, actually reach them.
Paul Johnson at the Institute for Fiscal Studies noted this week that tax-free child care allowances have been under-spent by £2billion since they were introduced because no one knows they exist.
It is estimated that if properly administered and propagated, as much as £15billion of social security payments, such as pension credits, could be released to those most hurt by rising inflation.
Instead of reaching for the revenue weapon, the Chancellor should make sure that Britain’s welfare state, one of the great legacies of the Queen’s reign, is doing what it is meant to do in assisting struggling families.
Loading business up with more levies will only suppress enterprise and investment.
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