Is a windfall tax the way forward?
Economically and politically, this week has been somewhat strained – 9% inflation, rising energy bills and a constant undertone of conversation about the cost of living. However, it is likely that coming weeks are going to be more difficult not only from a macro perspective, but also micro, and on our household budgets. So, what can be done to help ease the economic strains many people are starting to face?
One of the options currently being discussed by government, the opposition and the corporate world is a windfall tax - a one-off tax imposed by a government on a company or group of companies. The group of companies that would be targeted by this potential windfall tax is large energy companies.
According to Keir Starmer MP in yesterday’s PMQs, "a one-off tax on huge oil and tax profits would raise billions of pounds, cutting energy bills across the country”.
Not only would this help individuals and families, but it would help small businesses, the food and beverage sector, who are still recovering from a difficult period, as well as construction. For many of us right now, this fix appears like a logical step. On the other hand, it is causing the Conservatives, including the Prime Minister Boris Johnson, a real ideological dilemma. In terms of party values, the Conservatives are traditionally known for wanting to cut taxes, rather than introducing or raising them – especially when they are often associated with being the party for businesses. This was reaffirmed by Boris himself when he said that that Conservatives were “not in principle in favour of higher taxation.”
However, we all know that the premiership of Boris Johnson since the 2019 General Election has been far from traditional in either the political or economic sense. Between himself and the Chancellor Rishi Sunak, business models and economic schemes have had to be reimagined to adapt to a pandemic environment and have changed the world of work forever. So, given the incredibly adverse circumstances our nation is facing as a result of the rising cost of living, would pragmatism overtake the principles of conservative and also be a way for the PM’s reputation to be enhanced? It could be amongst voters who supported him in 2019 but may not have done in the recent local elections, but equally, breaking away from the traditions of the party could number Boris’ days at Number 10.
With inflation expected to increase, alongside another set of rising energy bills predicted for Autumn, the debate and potential introduction of a windfall tax is one that isn’t going to go away anytime soon.