Windfall Tax on Utility Comanies - Good Idea / Bad Idea?

[Marmora Man]

It's been talked of in the press, on radio and on TV. Unions are pressing for it, the Treasury are nervous and Gordon Brown isn't sure.

Where do you stand on this?

I do not believe it is right to take a large, albeit one off, sum from a business, or businesses that already pay their taxes as set by the state. While the absolute sums they make in profit are large - so is the capital demand on those profits and on their shareholders for re-investment in plant, equipment and alternative methods of creating the energy - wind, tide, sun, nuclear and so on.

The idea that the Government should take ?5bn from the energy companies and the disburse this to individual households is ludicrous - imagine the transaction costs involved in this redistribution by this government. If the Government / public really believe fuel poverty (see note later) should be alleviated than it would be better tackled by reducing overall costs to the individual and the best way to do this would be to raise tax thresholds - a ?1,000 hike in tax threshold would give every taxpayer ?220.

Fuel Poverty - defined as somone spending more than 10% of their disposable income on energy costs. A strange concept - what I spend my disposable income on is my business - I might want to waste energy and keep the house at 75F with every window open and eat beans on toast, or I might want to eat really well but barely heat the house at all and wear several layers of jumpers and thick socks (as I remember being the case when I was young). Fuel Poverty is a clever way to create a new "need" and disadvantaged group, but what is really required is reasonable incomes and to allow individuals make their own mind up about what to spend it on.

[SeanMacGabhann]

I agree with you on this for the most part. Where I differ is that I don't see the supply of utilities as a business. Turning it into a business model can be done and was done... but I'm not sure it's the right thing

It sure would - but at a relatively permanent large cost to the treasury - why give everyone a tax break for this one need

I agree with this too - but funnily enough finding a way of ensuring everyone has a "reasonable" income requires a hell of a lot more work - in fact over the last few decades it's being going the other way. When a government trys to impose a pittance of a minimum wage, companies are up in arms about how it's going to put them all out of business (it didn't did it?)

The fact is some old people are going to die this winter because they can't afford to put the heater on - they will be found in several layers of clothes, and in their beds - but dead they will be. What the government is proposing is a very clumsy and inefficient way of trying to stop at least some of those deaths. And I can see why, even discounting the fact that it might be playing to the public. I agree there must be a better way of doing this - but if you have your hand on ALL of the levers you have to find a balance - that's the reality

http://www.ageconcern.org.uk/AgeConcern/E6904EA890784AD6A1948DC77B832216.asp

Basically MM I agree with you - but find the analysis a touch (and forgive me for this!) cold, when the problem is more pressing. If people are dying of cold when the fuel companies are paying out large dividends and profits then it's a fairly simple equation .

[cdonline]

Would raising tax thresholds help those people, who are receiving benefits or are on the state pension?

I spend less than 5% of my take home pay on fuel, though I'm still one to complain about the cost. I have the choice to spend maybe a little more on these bills.

I presume the people who are defined as being in fuel poverty, their choice is heat or getting themselves further into financial difficulty. And that's rather sad.

[Marmora Man]

If people are dying of cold when the fuel companies are paying out large dividends and profits then it's a fairly simple equation

Sean, as I'm sure you'll recognise I wanted to see where the debate went - so I may have been a little "sterile" in laying down the challenge. However, I think your example above is, perhaps, a little simplistic as well - some people are not eating well or enough, but no one is proposing windfall taxes on supermarkets.

If this is a pressing social need then the balance comes from Government balancing its budget and responding to the need - not in Government changing the rules of the company taxation game and creating a new tax on the back of some rather clever special need pleading. Do we put ID cards, the NHS super computer system, 250 Eurofighters, two new aircraft carriers, Hazel Blears or any other government minister, ahead of providing targeted fuel payments to those in need?

[Huguenot]

Ha! At last MM back in the naughty corner!

The issue with the energy companies is that they've misrepresented the impact of rising resource costs. A rise in 10% at the well doesn't mean a rise in 10% at the household. It's a fixed cost. The reason the windfall is being discussed is poonishment.

However I must say that SMG's a bloody cheap date with his heart strings stuff ;-)

[SeanMacGabhann]

[/quote

Of course he is! And as I wrote it even I knew it would provoke just that opinion. Allied to that, I know full well that I am prone to such glib comments.

And yet and yet....

If one can't be bleeding-heart about something that simple, just what can one be bleeding-heart about?

Take the government out of the equation (as MM would like to do) - and let's look at the energy companies making those profits against their customers.... and let's not pull punches... dying because they can't afford the suppliers prices. If YOU headed such a company, could you not, for PR reasons if nothing else, find SOME way of being pro-active

Look, here is a natural resource. Thanks to state money, the infrastructure to extract said resource is, by and large, already available. You land the job of CO of not-that-long-ago-privatised-company. Just what exactly IS it that you do that warrants such lavish reward. Not too long ago, a civil servant earning a modest sum, oversaw the same operation.

[????]

....oh and you remember super efficient British Gas fixing people's boilers in, oooo, days when people were freezing to death in the 1970s....that was of course when we didn't have electricty several hours a day during the 3 day week as the Miners (working for a nationalised body) didn't want the democratically elected governemnt running the country....

[Marmora Man]

Sean,

The problem is there are endless heart string situations out there - pharmaceutical companies, food companies, travel companies, clothing companies. Creating special cases skews the market - ensuring everyone has a fair living wage doesn't.

Lower tax thresholds and taxes - it disproportionately benefits the less well off. For me a ?500.00 a year reduction in tax would be nice but in % terms not a lot, for a single mum currently paying ?1200 tax on a ?10,000 year income it would make a big difference - almost halving her tax bill and increasing her take home pay by about 6%, or twice any pay rise she can expect from an employer this year.

[SeanMacGabhann]

swift reply Mr pounds

I made no claims for the efficacy of British Gas. I just pointed out the disparity between profits and consumers. Where I buy cd's, books, beer, gambling chips is my choice. Heat/energy wise I have ostensible "choice" - but no control

Broken boilers are as much of a problem now as the 70s - I would argue more so. Rely on the insurance by the profit-making behemoths? Hmmmm. Get an emergy fix in? Sweet baby moses!!!

What unions did back in the 70's isn't REALLY pertinent to the current situation. But thanks for putting your argument through the Littlejohn-ometer first

[SeanMacGabhann]

MM - cross posted with your in reply to ????

As I previously said - I agree with what you are saying. I believe the windfall tax to be a clumsy excercise. And I find no fault with your logic - although when you say

I'm not sure the CBI would agree with you. Erm... us. Whatever.

I meant to discuss with you in more detail at the Duke but was detained elsewhere. Good to see you however

[macroban]

A mild statement from Marmora Man:

> the best way to do this would be to raise tax thresholds - a ?1,000 hike in tax threshold would give every taxpayer ?220.

That's only tinkering. Back to the 1950s:

(1) No individual on average earning pays income tax - raise single person's tax code to 2500L.

(2) Adjust means-tested benefits to match (1)

(3) Re-introduce Schedule A Income Tax.

[Marmora Man]

Macroban, your agenda would win my broad support - except that alongside it is needed a concrete plan to reduce the size of the state. lifting threshold to 25K would reduce tax take by approx 150 - 200 billion (30 million tax payers x 5,000 - 7,000 pound).

The necessary cuts would, in my view be helpful, but given growing dependence on t

e state since the 50's very difficult and divisive. so many people are wedded to the proposition that "the government must do something" rather than "I must do something".

[louisiana]

SeanMacGabhann Wrote:

-------------------------------------------------------

> >

> I agree with you on this for the most part. Where

> I differ is that I don't see the supply of

> utilities as a business. Turning it into a

> business model can be done and was done... but I'm

> not sure it's the right thing

>

>

> It sure would - but at a relatively permanent

> large cost to the treasury - why give everyone a

> tax break for this one need

>

>

> I agree with this too - but funnily enough finding

> a way of ensuring everyone has a "reasonable"

> income requires a hell of a lot more work - in

> fact over the last few decades it's being going

> the other way. When a government trys to impose a

> pittance of a minimum wage, companies are up in

> arms about how it's going to put them all out of

> business (it didn't did it?)

>

> The fact is some old people are going to die this

> winter because they can't afford to put the heater

> on - they will be found in several layers of

> clothes, and in their beds - but dead they will

> be. What the government is proposing is a very

> clumsy and inefficient way of trying to stop at

> least some of those deaths. And I can see why,

> even discounting the fact that it might be playing

> to the public. I agree there must be a better way

> of doing this - but if you have your hand on ALL

> of the levers you have to find a balance - that's

> the reality

>

> http://www.ageconcern.org.uk/AgeConcern/E6904EA890

> 784AD6A1948DC77B832216.asp

>

> Basically MM I agree with you - but find the

> analysis a touch (and forgive me for this!) cold,

> when the problem is more pressing. If people are

> dying of cold when the fuel companies are paying

> out large dividends and profits then it's a fairly

> simple equation .

+1

Yes, let's have reasonable incomes, but they are not there now.

My gran's state pension is 2x my mum's. Both live together, in Spain (north, cold), but my gran's pension is Spanish, while my mum's pension is UK. (And my mum actually worked for far more years than my gran.) My gran would have no problem paying utility bills and most other things. My mum would. If my gran (in her 90s) died tomorrow, there would be a gaping hole in the household economy. Sure, she could turn down the heating a bit (my gran is largely immobile following various stokes etc.) but...

The UK penion system does not match up to those in much of the rest of N Europe (and even some parts of S Europe it seems!)

You could well ask: Are all those pensions sustainable? And that would be a very good question...

But at the end of the day we have to be in a position where most old people can afford to put on the heating in the winter to stop themselves freezing, and we have to find a way of getting to that position.

[louisiana]

Marmora Man Wrote:

-------------------------------------------------------

> Sean,

>

> The problem is there are endless heart string

> situations out there - pharmaceutical companies,

> food companies, travel companies, clothing

> companies. Creating special cases skews the market

> - ensuring everyone has a fair living wage

> doesn't.

Most libertarians would argue that this also skews the market. Albeit a different market.

>

> Lower tax thresholds and taxes - it

> disproportionately benefits the less well off. For

> me a ?500.00 a year reduction in tax would be nice

> but in % terms not a lot, for a single mum

> currently paying ?1200 tax on a ?10,000 year

> income it would make a big difference - almost

> halving her tax bill and increasing her take home

> pay by about 6%, or twice any pay rise she can

> expect from an employer this year.

Sounds like an excellent argument for a progressive tax regime. (i.e. higher tax rates for higher earners)

Perhaps not what you intended, Marmora Man?

[louisiana]

SeanMacGabhann Wrote:

-------------------------------------------------------

> swift reply Mr pounds

>

> I made no claims for the efficacy of British Gas.

> I just pointed out the disparity between profits

> and consumers. Where I buy cd's, books, beer,

> gambling chips is my choice. Heat/energy wise I

> have ostensible "choice" - but no control

Where is the choice?

It is an oligopoly.

Do they all meet at White's and fix the price over a large port? It hardly matters. They might as well.

[Marmora Man]

TImes 8 Sept - Ideas for a Conservative GOvernment

I could vote for and support a party advocating this simple set of policies - which might enable a slightly lower cost government and the raising of tax thresholds.

[Marmora Man]

Sounds like an excellent argument for a progressive tax regime. (i.e. higher tax rates for higher earners)

Perhaps not what you intended, Marmora Man?

I'm certainly not massively in favour of progressive taxation on the current model - I prefer a flat rate - with high tax thresholds, which in itself can be described as progressive if a significant minority (or even a majority a la Macroban above) don't pay tax at all.

[macroban]

One reason for a high income tax threshold and a commensurate change in means-tested benefit qualifying levels is to stop the waste and cost of bureaucracy of one arm of government taking away money from and individual and another arm of government giving it back to the individual again, sometimes in a hypothecated manner which denies freedom of choice.

I would have thought the re-introduction of Schedule A Income Tax would be contentious in areas such as East Dulwich.

[indiepanda]

macroban Wrote:

-------------------------------------------------------

> One reason for a high income tax threshold and a

> commensurate change in means-tested benefit

> qualifying levels is to stop the waste and cost of

> bureaucracy of one arm of government taking away

> money from and individual and another arm of

> government giving it back to the individual again,

> sometimes in a hypothecated manner which denies

> freedom of choice.

Agreed. And this disconnect between the two systems can create a disincentive to work because for every ?1 earned, people on low income find themselves losing more than ?1 in benefits, making it better to stay on benefits.

[Huguenot]

There seem to be mixed agendas here.

Macroban and MM are simply parading their usual arguments of lower taxation for all (consumers and energy companies). It seems to have sod all to do with the original question, which is whether there has been excess profiteering by the energy companies that should attract a windfall tax or greater regulation.

We're then into the welfare state creating dependency and abdication of responsibility.

If it's a windfall tax it's not hypothecated for social security or energy payments? It'll get divied up into the government's usual budgets? If you want energy for OAPs (and everyone else) at more reasonable prices, you tell them to cut the price.

If you just want more money for OAPs then you either increase taxation or take it from another spending budget.

You could find it from another budget by cutting costs, but let's be honest... the greedy, work-shy union classes wouldn't accept that without the country going on strike.

If you try and overtax 'rich' people, firstly there aren't enough of them, and secondly they leave the country and everything goes to the dogs.

This isn't rocket science?

[Marmora Man]

To answer / respond to Hugenot - since I made the first pot let me state that I do not believe that the energy companies are making excess profits.

What happens to profits? Two / possibly three things.

1. A portion is paid back to shareholders as dividend. Usually a relatively small portion. THis benefits to country and many pensioners whose pension funds hold Energy company shares. For 2007 / 08 dividends have risen over the previous year by approx ?75 a shareholder.

2. The balance goes to company reserves - to be used for future investment and development. It usually the reserves requirement that is considered first before a decision on dividend payments. Given that all energy companies have targets to reduce reliance on fossil fuels and to shift toward renewables this is a costly exercise.

3. Least cost is on bonus & rewards for staff and management in achieving / exceeding objectives.

Nobody is hauling home sacks of gold to squander on high living from these profits - the vast majority of the profits go back into the business to fund the future. If this didn't happen the energy companies would rapidly fail and we'd have little energy to buy.

It is the shift from nationalised providers that allows this model where the company's profits are re-invested - in previous times the capital cost of development for the future came not from profits but from government and taxation - and you know where I stand on that idea.

[macroban]

> Macroban and MM are simply parading their usual arguments of lower taxation for all

An ad mulierem attack and at least three other rhetorical devices in so few words. The writer should try a career in advertising.

The re-introduction of Schedule A Income Tax is not "lower taxation for all".

[snorky]

blah blah blah

I can imagime most of the posters were more than happy the take their few quid profit when the Utilities were Sold off - along with everything else that wasnt nailed down - short memories , but does it not effectively deprive you of a bleat when things get shitty 20 odd years down the line ?

[Huguenot]

Oil companies are split into two main businesses: upstream (exploration and distribution) and downstream (refining and supplying).

If upstream businesses respond quickly to supply and demand issues by raising costs to downstream businesses, but their downstream businesses only respond slowly to cost decreases by 'floating' the price at the pump then that is profiteering.

BP's YOY 2nd quarter profits are up over 50%.

The discussion about whether it goes in dividend or reinvestment is misrepresentation. Reinvestment is made on the assumption that the profits will deliver greater returns in the future than their cash realisation now. Profiteering is not excluded from this cycle and it has no impact on the debate.

The differentiation between salary, bonus and reward is also misrepresentation - it's all labour remuneration. Labour costs are a very high part of overall costs.

The differentiation between 'reinvested profits' now, and 'government taxation' in the past is also misrepresentation. The profits derived from the company in the past were the government funds.

The fact is that significant competitor oil and gas companies are in their respective government hands, who then control pricing at the downstream end to their own domestic businesses and consumers. These reduced costs have a major impact on the competitive position of domestic companies in the international markets and plays to their advantage, not ours.

The question of windfall taxation should rest on whether the current debilitating costs to consumers are derived from sharp practice, and whether the oil companies have a responsibility to the community they supply.

As it happens I don't believe that windfall taxation is the answer, I'd like to see heavier commitments to reinvesting this cash actually within the UK in alternative domestic energy sources, research and development.

[AllforNun]

You forgot the bit about the Treasury pocketing a surplus of at least ?5.1 billion from North Sea oil and gas taxes this year, possibly even getting close to 8billions, before any windfall tax.