It’s time for a windfall tax

Pat McFadden MP, Labour Shadow Chief Secretary to the Treasury, argues the Government must act in the face of a cost of living crisis.

A cost of living triple whammy is hitting the UK.

Real wages are falling. Energy prices are rocketing. And the Conservative Government are imposing several tax rises from April 2022.

As the Bank of England has confirmed, these factors are set to hit household incomes harder than anything has for decades.

Rising energy billls

The announcement from the energy regulator, Ofgem, that the energy price cap is to go up by a stunning £693 a year will come as a body blow to many households in constituencies like mine.

Labour saw this problem coming and has been calling for more effective action for months. At the turn of the year, we produced a package that would give everyone £200 off their bills with a further £400 off for the poorest 8 million households. We would pay for this in part through the increased VAT receipts the Government is enjoying because inflation is higher than expected.

Oil and gas companies cashing in

The rest of the funds for this plan would come from a windfall tax on the oil and gas companies that are collecting enormous profits from this crisis. This one-off tax would ensure greater fairness and prove much more effective than the Government’s current approach. It would ensure that the companies making the most from the huge rises in global gas prices pay their fair share in supporting hardworking families, the squeezed middle, pensioners, and low earners to get through the tough months ahead.

If you want a sense of the size of the profits being made by energy companies look at Shell’s recent financial results. Their annual profit last year quadrupled to $20 billion in what the Chief Executive described as a “momentous year”. His rival at BP described the current market as a “cash machine” for his company.

Is this fair?

Labour thinks it is only fair that these companies pay something back to help relieve the huge bills consumers are facing and it appears that the British public is with us. A YouGov poll commissioned by Friends of the Earth earlier this year indicated that over three quarters of the country (76%) back the idea of windfall tax on gas and oil companies to help people struggling with their fuel bills.

Government’s inadequate plan

The Labour plan is fully costed, and our windfall tax plan would help us relieve the cost of energy bills for the poorest households in a fair way.

In contrast, the Chancellor’s package falls short of what is needed in three important respects.

• Firstly, the money off the bills is in effect a Buy Now Pay Later scheme involving exchanging reduced bills this year for a £40 surcharge on bills for the next year – and it is contingent on prices falling next year – something that is by no means certain.
• Secondly, the Government’s plan gets a lot less help to the poorest households than Labour’s plan. Whereas our plan would allow us to reduce the bills for the poorest by £600, the Tory figure is £350, leaving the poorest still facing much higher bills.
• And thirdly, the Chancellor asks nothing of the companies making the most from this crisis. His funding comes entirely from billpayers over the next five years and taxpayers in general.

His is a less generous package and impacts harder upon working families.

Households continue to struggle

Even with his package, the combination of the triple whammy of price rises, tax rises and falling real wages still adds up to a very tough year ahead when it comes to the cost of living and household budgets.

While the cost of gas is a global issue, ten years of the Conservative Government’s failed energy policy has helped create a price crisis that’s now being felt by everyone.

The Conservatives cannot provide an answer to the cost of living crisis because they are the cost of living crisis.

In the context of declining standards of living, this one-off windfall tax will prove a vital life jacket for millions of hardworking families across the nation who are struggling to pay their bills.

About the author

Pat McFadden worked as a researcher for Donald Dewar MP, a speechwriter for John Smith MP and an adviser to Tony Blair, both in opposition and later in 10 Downing Street.

In 2005 Pat was elected as MP for Wolverhampton South East, serving in various Government roles under Tony Blair and then Gordon Brown in the Cabinet Office, and the Business Department. In opposition, Pat has been Shadow Secretary of State for Business, a member of the Treasury Select Committee, Shadow Minister for Europe, Shadow Economic Secretary and now Shadow Chief Secretary to the Treasury.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.