Oil and Gas Producers: Windfall Tax

Bell Ribeiro-Addy Excerpts

Tuesday 1st February 2022 Commons Chamber

[Bell Ribeiro-Addy (Streatham) (Lab)]

The planned rise in energy bills will be devastating for tens of millions of households, and it is clear from the contributions of right hon. and hon. colleagues that there is widespread understanding of just how devastating those price increases will be. Unfortunately, that understanding does not seem to extend to the Government Benches. Not only is that complacency very misplaced, but it is a political error. I know that I am relatively new to the House, but I would like to offer those on the Government Benches some advice: “When you are in a hole, stop digging.” The fortunes of the Government are not going to recover if they stand by and allow energy prices to skyrocket. As my hon. Friend the Member for Bradford East (Imran Hussain) pointed out, if they make the public pay, they will in turn pay. Because obscene profits are being made by the energy wholesalers and the energy retail companies while our constituents are suffering, and it has nothing to do with their own efforts.

My hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) recently reminded us that the disastrous rise in prices should not be a surprise; we were all warned that closing Britain’s largest gas storage plant in 2017 was illogical, when we already faced volatile winter gas prices and were becoming too dependent on energy imports. Scrapping our own energy storage capacity also obliged the energy companies to make short-term purchases in the wholesale markets—quite possibly the most short-sighted and idiotic way to run a utility business.

Therefore, in the motion before the House the Opposition have offered a way forward: a windfall tax to help fund a package of support for families and businesses who are facing this crisis. I hope that such a package would include a programme of home insulation to increase energy efficiency. Our poorly insulated homes are giving rise to higher fuel costs and increasing our carbon emissions. But the ultimate solution would be one that helps fund the green industrial revolution, as the Labour party outlined at the last general election. We committed to a just transition fund, which was predicted to generate an £11 billion support package.

Utility businesses provide public goods, but there is nothing good about the current conduct, or how the market is chaotically structured under this Government and their predecessors. The main objection to windfall taxes is that they are very destructive to business planning, but that is not really a fair description of a one-off price rise if it is met by a one-off tax increase. Businesses continue as before, but the windfall is redistributed to consumers rather than shareholders.

The further objection is: what if it is not a one-off energy price rise and is instead a permanent—or at least a long-lasting—increase in energy costs: what is the response then? Windfall taxes year after year. Although that objection has some merit, the appropriate response is not to let these poorly run energy companies make excess profits in perpetuity. If it is found that they are making huge profits year after year, and households continue to struggle year after year, that would undoubtedly be a failure of Government policy, in which case the logical response would be to take them into public ownership. After all, who better to provide a public good than the public sector? That is something that trade unions such as Unison and campaigns such as We Own It have been arguing repeatedly. The model of diversified owners, new entrants and challenger companies has completely failed. Many of those companies failed so much that they have gone bust. It is a fake competition model, because they all buy energy from exactly the same source.

The objection that my proposal is hugely costly does not carry much weight because the Treasury, through the Debt Management Office, can borrow for 10 years at interest rates below 1.4% per annum. The energy companies’ dividend yield is currently 4% or 5% per annum, so purchasing them would generate cash for the public finances, and the excess could be used for public good. The priorities for public good are to cut bills and invest in capacity. Overall, this capacity should overwhelmingly be from renewable energy.