If Rishi Sunak has indeed become a convert to windfall taxes on energy companies, there does not appear to be much logic to his position. In an interview with the Mumsnet website, the Chancellor said that it was a policy he would look at if the firms did not increase investment. But windfall taxes – sometimes erroneously described by Leftists as taxes on “excess” profits – tend to discourage investment in productive capacity. Indeed, that was exactly what ministers had been arguing until Mr Sunak launched his intervention.
The Chancellor appears to be frustrated that, following the release of the Government’s somewhat piecemeal energy strategy, companies have not taken rapid advantage of licences to explore and exploit North Sea oil and gas reserves. Ministers quite rightly want to make the UK less dependent on imported supplies, and over the next few years at least that will require more domestic production of fossil fuels.
The trouble is that the Government only seems to be interested in oil and gas for reasons of short-term political expediency. In the longer-term, it remains wedded to the net zero ideology and progressively shifting the country away from hydrocarbons.
Yet that hardly creates a stable environment for investment in the fossil fuels we will require in the meantime. Energy companies will want certainty that the money they spend now will deliver returns to their investors over a timescale sufficient to justify the upfront cost. The whole industry is also wrapped up in increasing amounts of bureaucracy, much of it unjustified.
Britain’s wider energy strategy has long been bedevilled by political short-termism allied with unrealistic environmental ambitions. That has resulted in the withering of the UK’s nuclear sector, massive and possibly uneconomic subsidies for renewable energy, and surging bills for households and businesses. It is a house of cards that the Russian invasion of Ukraine – and the consequent turmoil in global energy markets – has threatened to topple.
If the energy sector operated as a free market, higher prices ought to be incentive enough for companies to expand their activities to cater to demand. But it does not. A Tory chancellor should know better than to castigate the industry and threaten to blackmail it via tax policies stolen from the Labour Party. It would be preferable if the Government just got out of the way.
If Rishi Sunak has indeed become a convert to windfall taxes on energy companies, there does not appear to be much logic to his position. In an interview with the Mumsnet website, the Chancellor said that it was a policy he would look at if the firms did not increase investment. But windfall taxes – sometimes erroneously described by Leftists as taxes on “excess” profits – tend to discourage investment in productive capacity. Indeed, that was exactly what ministers had been arguing until Mr Sunak launched his intervention.
The Chancellor appears to be frustrated that, following the release of the Government’s somewhat piecemeal energy strategy, companies have not taken rapid advantage of licences to explore and exploit North Sea oil and gas reserves. Ministers quite rightly want to make the UK less dependent on imported supplies, and over the next few years at least that will require more domestic production of fossil fuels.
The trouble is that the Government only seems to be interested in oil and gas for reasons of short-term political expediency. In the longer-term, it remains wedded to the net zero ideology and progressively shifting the country away from hydrocarbons.
Yet that hardly creates a stable environment for investment in the fossil fuels we will require in the meantime. Energy companies will want certainty that the money they spend now will deliver returns to their investors over a timescale sufficient to justify the upfront cost. The whole industry is also wrapped up in increasing amounts of bureaucracy, much of it unjustified.
Britain’s wider energy strategy has long been bedevilled by political short-termism allied with unrealistic environmental ambitions. That has resulted in the withering of the UK’s nuclear sector, massive and possibly uneconomic subsidies for renewable energy, and surging bills for households and businesses. It is a house of cards that the Russian invasion of Ukraine – and the consequent turmoil in global energy markets – has threatened to topple.
If the energy sector operated as a free market, higher prices ought to be incentive enough for companies to expand their activities to cater to demand. But it does not. A Tory chancellor should know better than to castigate the industry and threaten to blackmail it via tax policies stolen from the Labour Party. It would be preferable if the Government just got out of the way.