RUTH SUNDERLAND: Left’s big lie behind windfall tax

One of the Left’s most dangerous lies is that society’s ills can be solved by taxation. 

The clamour for a windfall tax on oil companies sparked by Shell’s £14billion profits will become louder tomorrow when BP is expected to report a figure of around £9.6billion. Numbers like these are provocative, coming as households wince at huge increases in energy bills. 

All too easy for shadow climate secretary Ed Miliband and his cohorts to make a populist case for a tax raid on these gains. 

Juggling act: The argument for a windfall tax rests on the assumption oil companies are exploiting families to reward shareholders – but these are the same people

This is just the latest variation on a theme. Earlier in the Covid crisis, the Left-leaning Resolution Foundation agitated for a ‘pandemic profit levy’ on firms that had supposedly cashed in, such as online retailers. 

Perhaps they would have liked to supertax AstraZeneca too, as a punishment for making its humanity-saving vaccine. 

There were also suggestions of wealth taxes on the middle class, who had benefited from house price rises and the £200billion of ‘accidental savings’ on travel costs and leisure spending in lockdown. At first blush, the oil company profits do look obscene. 

The argument for a windfall tax rests on the assumption oil companies are exploiting families to reward shareholders – but these are the same people. Millions of Britons invest in Shell and BP through pensions and ISAs, so a windfall tax would be robbing Peter to pay Paul. 

Oil is a volatile business. This time last year, Shell reported a gusher of red ink and BP plunged to its worst loss on record. 

The fat profits are a swing back from the very lean 2020. Big oil is facing existential challenges. Companies such as BP and Shell are expected either to wind down their old polluting assets or to pivot and help fund the transition to greener energy.

Siren voices for windfall taxes will not stop at oil companies: banks are likely to be the next targets as they are likely to report chunky increases in profits. 

I’m the last person to defend our lenders, but a major factor in this was that forecasts for the economy in 2020 were too gloomy. Therefore, the banks were able to release some of the money they had set aside to cover bad loans, which boosted their bottom lines. Not so much an unjust jackpot, then, as an excess of caution. 

Windfall taxes are unfair because they are retrospective. They deter investment. Companies will be reluctant to put resources into this country if they fear huge tax bills after the fact on any gains they may make. In the case of North Sea oil, a brake on investment would leave us more exposed to the vagaries of international oil markets, which is the last thing to help consumers.

As an aside, the industry is hardly undertaxed in the first place and the Treasury will receive billions of additional revenue due to higher oil prices. 

Windfall taxes have a long and futile history, dating back in modern times to Sir Geoffrey Howe, who hit the oil sector in 1980 and banks a year later. George Osborne had another go at North Sea producers in 2011. The biggest raid was Gordon Brown’s £5billion 1997 levy on privatised utilities. 

A windfall tax will do nothing to tackle the real reasons household bills have risen to untenable levels: over-reliance on imports, lack of storage and an obsession with hitting green targets too quickly. 

The best action the Government could take towards Shell is to help it progress with the shelved Jackdaw and Cambo developments in the North Sea. 

There are no magic tax wands that will make our economic problems disappear. The sooner the Left gives up that illusion, the better.

This post first appeared on Dailymail.co.uk