The FT Westminster blog notes that the Tories have broken their silence on the increasingly heated debate within the Labour Party about a windfall tax on the energy companies.  Alan Duncan, Shadow Business Secretary, rang the FT and said:

“Whipping up hatred is not a good basis for fair taxation. What matters more than retrospective taxation is properly working competitive markets, which is what [the energy regulator] Ofgem is there to bring about… We are seeing old-fashioned socialist hatred converting once again into high taxation.”

Matthew Sinclair set out the case against a windfall tax over at the TPA blog:

  1. Energy companies are not responsible for massive increases in prices: "Another reason that prices are going up is that the government are putting in place new charges and regulations such as the European Union Emissions Trading Scheme, the Renewables Obligation and the Climate Change Levy… The Government could reduce prices tomorrow by scrapping some of these ineffective regulations."
  2. Energy company profits aren’t necessarily the result of collusion or exploiting hard-pressed consumers
  3. Windfall taxes discourage investment: "Imposing a windfall tax sends a message.  It tells business that if they make important investments, that need to pay off with substantial profits later on, we will punish them for it.  We might try and convince them that the windfall tax is just a one off, and future investments won’t be punished for being useful, but they have no good reason to believe us."
  4. Windfall taxes encourage fiscal irresponsibility: "If the Government increases spending to make use of the revenue from a windfall tax, or fails to take action to plug ongoing gaps in the public finances, then they have stored up fiscal problems for the future – once the windfall is spent."

Read Matt’s full post here.  Also worth reading is this post at Comment is free by Deborah Hargreaves.  She is also worried about the investment effects of a windfall tax, too: "Already companies are grumbling about the difficulties of building power stations in Britain where they face long planning wrangles, little state help and environmental protests. Add an arbitrary levy to those drawbacks, and the UK becomes even less attractive for international investment dollars."

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