There are two things to bear in mind when considering the question of whether or not the next Prime Minister should levy a windfall tax on oil and gas companies to help with the cost-of-living crisis.
The first is that the Government already imposed one only in May of this year. The second is that it isn’t going to raise much money – about £5 billion in its first year, apparently. Now, this isn’t nothing. But it is not going to make much of a dent in terms of raising funds to support household budgets.
It is also a potential disincentive to investment. As the BBC reports, part of the reason British oil and gas producers have paid little to know tax in some previous years is the result of a combination of a) the fact that these companies lost money and b) write-offs against legitimate expenses, such as decommissioning oil platforms.
As both leadership contenders will know, there’s a reason the tax system lets companies take a multi-year view like this. If we instead end up with one where producers have to bear the cost of the bad years but have the offsetting good years skimmed off amidst general outrage, it is scarcely going to encourage companies to invest in exploration in the North Sea (let alone something like fracking).
Ultimately, most of the people making the real profits right now – Gazprom, the Saudis, et al – are not within the ambit of the Exchequer.
(Of course, there might be other reasons for both candidates to be shy about making the investment argument given that the Party has had 12 years to improve our output and infrastructure and, well, hasn’t.)
But with Labour calling for an extra tax as part of its plan to freeze energy bills, the pressure will be on whoever wins not to be seen to be leaving money on the table. Perhaps I’m being excessively cynical, but the contest so far has not shaken my belief that when it comes to the current crop of Tory MPs, there are few free marketeers in a foxhole.
(As John Rentoul has pointed out, Labour’s policy is actually the most regressive in the field right now: Keir Starmer proposes to spend vast sums holding down bills not just for the least-well-off, but for everyone. This is also, in effect, underwriting demand, which will force the State to pay out even more.)
Whether or not the candidates manage to avoid making this particular mistake, however, the broader shape of the debate doesn’t seem to have left a lot of space for what we might consider traditional Conservative arguments for a leaner state.
Whilst both candidates are offering more of fewer tax cuts – and may even deliver them, who knows – the big story of this winter is going to be another massive government intervention in the economy, following so swiftly on from the pandemic which was similarly defined by huge state spending to protect incomes.
There were perfectly coherent, exigent arguments for all that. But one could also plead special circumstances for central planning during the War. It doesn’t change the fact that long periods of higher state involvement tend to see voters get habituated to that involvement. The waters may recede after the crisis, but the tideline usually ends up a little further up the beach.
If the Government is really going to eat the cost of domestic energy bills, that’s one vast expense. But what about commercial bills? Is the next Prime Minister going to let swathes of businesses go to the wall because of a global crisis – after spending so much to keep them going during Covid? And that’s to say nothing of the medium-term impact on the competitiveness of British (and European) industry if they spend the next year or two paying much more than American competitors for energy…
Beyond that, both candidates will have to contend with the corrosive effects of inflation on the NHS, defence, and the rest of government spending. It will also push up the cost of projects they might have committed to building. Unless all this is offset by truly swingeing cuts elsewhere (it won’t be), that’s going to require even higher taxes or even more borrowing.
Should the economic situation continue to get worse, there may yet come a point when the public are open to arguments about dramatically restructuring the economy and the state in order to shoot for growth. But it took many years of political pain to get the voters ready to return Margaret Thatcher – and a well-timed war to secure her a second term.
There’s little evidence we’re there yet. And if not, it most likely means that even if the Conservatives do win the next election, activists will once again come away feeling that their party isn’t wielding power to make Britain a more conservative country.