Name: Is the Windfall Tax (UK) a good idea? | Rishi Sunak, Gas prices, inflation, UK, u turn, tory, labour
Uploaded: 2022-10-02T12:12:22+00:00
Duration: 11 min 45 s
Description: INFLATION. It sucks. But it has become more prevalent with covid, the supply chain crisis, lockdowns, and a Russian invasion. Particularly with gas prices. But this has been contrasted with record pro

1 year ago

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windfall tax rishi sunak sunak rishi windfall tax Labour conservative tory UK United Kingdom

INFLATION. It sucks. But it has become more prevalent with covid, the supply chain crisis, lockdowns, and a Russian invasion. Particularly with gas prices. But this has been contrasted with record profits made by energy companies leading to widespread outrage.
In response to this record inflation, UK Chancellor of the Exchequer Rishi Sunak announced a £15 billion package that is partially funded by a £5 billion windfall tax. This package includes a £400 discount to millions of households to pay for energy bills, a one-off £150 disability cost of living payment, pensioners receiving £300 and 8 million low-income households receiving £650. But what is a windfall tax? A Windfall tax is a one-off tax targeted on companies who made unexpected profits in circumstances that they were not responsible for. Like say the invasion of Ukraine leading to Russian oil not being an option, or global demand rising after lockdowns start to ease. The tax will be 25% on top of any current tax that energy companies are paying and will only be applied for the next 12 months. It also cannot be reduced by previous losses or expenditures. The Tory government initially opposed a Windfall tax for concerns on green energy investment and being less reliant on Russia while the Chancellor said he was not naturally attracted to such a tax but would be pragmatic about it. So, I will leave it to you to decide if he flip-flopped.
Regardless, the question remains. Is the windfall tax a good idea? Such a tax has been rarely implemented so there isn’t much to draw from. But there have been windfalls within the United Kingdom in 1981, 1997 and 2011 as well as one in America back in 1980. But he American windfall tax and the 1997 UK tax were on energy companies and have been thoroughly investigated so we will check those out.
According to a study on a 2005 American Wind Tax proposal, it would negatively affect domestic oil production and retirement savings along with limited tax benefits. One of the justifications of the windfall tax is the argument that it won’t distort economic decisions, investments or markets because the profits are unexpected and abnormally high.

Sources:
BBC Article:
https://www.bbc.co.uk/news/business-60295177
Yahoo News Article:
https://uk.news.yahoo.com/how-windfall-tax-would-work-energy-bills-170325103.html
Different Windfall Taxes:
https://www.niesr.ac.uk/blog/windfall-tax-good-idea
1980 US Windfall Tax Study:
http://www.sonecon.com/docs/studies/windfall_1105.pdf
Oil Subsidy argument (Week):
https://www.theweek.co.uk/energy/956757/the-arguments-for-and-against-a-windfall-tax-on-oil-and-gas-profits
Paid to Pollute breakdown of Subsidies and Tax Cuts:
https://paidtopollute.org.uk/news/14-billion-in-subsidies/#_ftn2
Subsidy Britannica Definition:
https://www.britannica.com/topic/subsidy
Subsidy Investopedia Definition:
https://www.investopedia.com/terms/s/subsidy.asp
Subsidy Economics Online Definition:
https://www.economicsonline.co.uk/competitive_markets/subsidies.html/#:~:text=A%20subsidy%20is%20an%20amount,the%20amount%20of%20the%20subsidy.
Subsidy Economics Help Definition:
https://www.economicshelp.org/blog/915/economics/effect-of-government-subsidies/
Chartered Institute of Taxation article:
https://www.tax.org.uk/oil-tax-to-leave-a-slippery-slope
Shell Loss article:
https://www.theguardian.com/business/2021/feb/04/shell-makes-20bn-loss-as-covid-crisis-downgrades-assets
BP Loss article:
https://www.theguardian.com/business/2021/feb/02/bp-loss-covid-19-oil-demand
Pension concern Express Article:
https://www.express.co.uk/comment/expresscomment/1613153/tax-inflation-crisis-cost-of-living
Pension 0.2% article:
https://www.theguardian.com/business/2022/may/08/windfall-tax-on-oil-giants-wont-hurt-british-pensioners-thinktank-finds
Pension 8% article:
https://www.theguardian.com/world/2022/may/04/first-edition-bp-profits-windfall-tax
Pension not heavily invested in equities article:
https://www.express.co.uk/news/uk/1614881/pensions-news-BBC-dividends-windfall-tax-energy-companies-rishi-sunak-nadhim-zahawi
1997 Windfall Tax Study:
https://ifs.org.uk/fs/articles/fslucy.pdf