Windfall taxes, Sir John Major and profiteering

Oh why oh why oh why is Sir John Major suggesting a windfall tax on the energy companies? It’s the sort of thing one expects from lefties with a grudge against anyone with something they don’t have and would really rather like to have for themselves. Or, more pithily: if I can’t have it then I don’t see why they should – the running-dog capitalist scum.

This all starts from the view that energy utilities are operating a cartel (not entirely inaccurate) and are profiteering from their anti-competitive control of the market. Rather than all this profit going into the pockets of executives or shareholders, it should go to the benign state. Why? Do we suppose the money will find its way back into our pockets? Not likely, considering our debt stands at over £1 trillion. The debt interest alone is more of a burden on our wallets than anything the utility companies could throw at us.

Profiteering is quite different from profit. Any company – all companies, in fact – have to make a profit. If they do not, they are not a viable business. Continue to operate without profit, then your company (unless you have another source of revenue with which to offset losses, an example being the Guardian) will eventually default, go bankrupt, make people unemployed and stop paying tax to fund all those nice baubles to which we are now attached as stubbornly as any limpet.

So what is an acceptable level of profit: 0.0001%, 1% or 5-10%? And what constitutes profiteering? I’m not entirely sure; and it seems to me that the answer can only really be a subjective one. Bloomberg reports, for instance, that ‘Ofgem shows that energy companies’ net profit on each bill has risen from 5 percent in May 2010, when David Cameron’s coalition government took power, to 6.7 percent in May 2013.’ And the BBC reports that ‘SSE, formerly Scottish and Southern Energy, said it expected its annual profit margin to average about 5% over a three-to-five-year period, which it believed was “a fair amount”.’

We can argue over whether that’s profiteering or simply the profit necessary to ensure continued investment, but if we have a problem with it then we should have a problem with lots of other big companies. Tesco, for example, reported a profit margin of 6.5% in 2012. I’m not an analyst, so I’m not going to trawl the data and tell you that one figure is directly relatable to another, but that doesn’t seem too bad to me. It wasn’t so long ago we expected to receive about 5% in interest from our savings accounts. Those days are gone, for now, but were we profiteering to expect that sort of return?

But what is probably most odd (and deceptive) about this is the word itself: ‘windfall.’ It implies something of benign providence; a reward; something fallen out of the wind, to be precise, as if it is of no more consequence than picking up a leaf blown to your feet by a warm and pleasant gust of wind. It’s a bit like adding the word ‘Mansion’ to tax. It’s designed to make us accept it for wholly false reasons. Rich Toffs don’t deserve mansions, so why not tax them until they fully comprehend the crime they have committed by simply owning a nice large expensive house. It’s not really their money anyway; it’s the people’s money.

Still, if it’s a choice between a ‘windfall’ tax (which seems, I have to say, not unlike an opportunistic looting) and a price freeze, the tax is probably better. We already tax utilities more than other companies (apart from fuel, perhaps). The green and social levies, for instance, add to our bills. Perhaps we could lower utility bills by taking these levies off the bills and paying them through general taxation, which is a vastly more progressive way of raising the money.

My preferred option would be to encourage competition, explore other methods of supply (including green, nuclear and fracking) and reduce taxes to a minimum. After all, by far and away the most significant factor in the level of our utility bills is the global wholesale price. But I suppose we still haven’t quite noticed that the rest of the world has caught us up and is powering ahead, quite literally, to leave us now playing catch-up when it comes to quite a few things economic. Why would we add to those costs? It doesn’t make sense.