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Windfall


I’m sorry to come back again to the same topic as last week, but the increasingly hysterical reaction to energy prices forces me to. Latest to throw in his plan is Keir Starmer, the leader of the main UK opposition party. He’s come back from his holidays to give us his masterful solution to a global issue: he’ll impose a windfall tax on energy companies – basically, that is, oil and gas producers – because their profit levels are “more than they expected.” Well, I can see how this may have mass appeal, and indeed opinion polls seem to suggest it is popular with the majority. Why wouldn’t it be? If somebody else is forced to subsidise your bills, what’s not to like?

But of course it’s not that simple, except in the minds of politicians who crave only votes, not long-term solutions to problems. Let’s just step back from the immediate screeching, and consider the proposal. 

A lot of the readers of this column have, like me, spent their careers in the metals business, so I’ll use that as an example. We all know that there are certain countries where we would prefer not to do business; because the legal system doesn’t look stable, there is a history of non-payment of debts or of insurmountable difficulty in getting arbitration awards or court judgements enforced. So unless there is a supremely attractive proposition, and possibly even then, we avoid that business.

The UK is not one of those countries; the legal system is widely respected, people pay their debts and courts will enforce awards and judgements. It’s a stable environment, where what you get is what you expect. So if the UK is one of your possible investment targets, you of course look at the economic situation, you weigh up the poor productivity environment, you look at your potential return versus potential inflation devaluing it. All these, and other commercial considerations, drive your decision. But what you definitely do accept is that – although there may be changes in the future – what you see and what you get today in the legal and taxation world are the same; there may be future changes, but they won’t be retrospective. And that’s important.

What Starmer and his ilk propose – and sadly what our existing government have done, to an extent – is to say that that doesn’t apply any more. What will happen in the UK is that the government will look at how much profit you have made, then decide if they like it, and then decide how much tax they will charge you. (There is a surprising silence on what will be their approach of you make a loss – but I suspect we can all guess the policy will not be like a pendulum that reverts to the mean……) So that’s it, in the future; if the government wants more money, well, all it has to do is look at who’s got it and construct a retrospective tax to take it away. Damage future prospects? Who cares? It gets the votes in today, and of course that’s all that matters. I’m tempted to add – have you ever come across a poor former government minister? The sheer commercial illiteracy of these people, and yet their ability to protect their own position, is breathtaking. It’s so rarely about genuine long-term policy development, for the benefit of the society; it’s all about process, fishing out short-term schemes that ensure power. 

I used not to be quite so cynical, but successive governments ignoring energy until it’s (almost?) too late has sapped my belief in their basic competence. And yes, I do realise that I am simply criticising, without making any constructive proposal myself, but then, like the man asked to give directions from point A to point B, my answer would be “Well, I wouldn’t start from there, if I were you.”

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