Energy prices: what is a windfall tax and how would it work?
Boris Johnson refused to rule out a windfall tax on Thursday as the clamour for a one-off levy grows. Supporters of a tax on energy giants’ profits argue the funds raised could be used to ease the pressure of rising bills on struggling households. Here’s how it could work:
A windfall tax is a one-off levy that the government imposes on a sector that has made huge profits from something they were not responsible for. The government has imposed them on industries before – in 1981, Conservative chancellor Geoffrey Howe levied the banks, arguing they had benefited from high interest rates. In 1997, then Labour chancellor Gordon Brown raised £5.2bn from a windfall tax on privatised utilities.
Labour originally argued that a one-off, year-long windfall levy could raise £1.2bn to fund discounts on home energy bills, which are already at a record high of £1,971 for an average dual-fuel tariff. A further eye-watering rise is expected in October. However the party now believes the levy could raise £2bn due to soaring energy prices.
The party has proposed levying an extra 10% on the corporation tax paid levied by the British government on the profits companies derive from drilling in the North Sea. Tesco chairman John Allan has said there is an “overwhelming case” for the tax.
This would not only affect well-known firms such as BP and Shell but also lesser-known ones such as Harbour Energy – which actually produces more oil from the North Sea than any other extractor.
The oil majors do not split out their North Sea earnings but have posted bumper profits in recent weeks. BP’s profits more than doubled in the first three months of the year. Its chief executive, Bernard Looney, has described the company as a “cash machine” and admitted a
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