Brian Monteith: Why do ‘temporary’ Tory taxes become permanent?

Tory Chancellor Jeremy Hunt’s keenness to keep the windfall tax is unwise, writes Brian Monteith

It was in 1798 that Prime Minister William Pitt the Younger announced there would be a new-fangled device to raise funds for the coming Napoleonic War. Called Income Tax, it would only be temporary, but 226 years later we still have it .

What is it about temporary taxes – and they do seem to be Tory temporary taxes – that they never seem to go away, but either survive or are brought back, Frankenstein-like, from the dead, even more scary than first conceived?

At least Pitt the Younger’s tax was abolished by subsequent prime minister Henry Addington in 1802, but he quickly brought it back again between 1803-16 as the Napoleonic war erupted again. Tory PM Sir Robert Peel revived it in 1842, and although Tory Benjamin Disraeli and Liberal William Gladstone both promised to abolish it, neither did so, despite enjoying six terms as prime minister between them.

Now Jeremy Hunt’s budget is extending the so-called “Windfall” tax on oil and gas production for a further year into 2028-29 – a shabby piece of politics that deserves to be punished in the polls. Douglas Ross, the Scottish Tory leader, and Andrew Bowie, a junior Energy minister (pictured), have every right to protest the Chancellor is wrong. The tax has already caused the cancellation of new projects and is undoubtedly costing jobs and prosperity in the North East of Scotland and through the wider Scottish economy.

Maybe we are witnessing one of those choreographed political dances; this one could be a variation on the Monster Mash, where politicians agree in advance to object to an unpopular measure, only for the government to say it has listened, and withdraw the proposal to make them look influential and worth the electorate keeping them on the taxpayers’ shilling?

Or maybe the outrage of Ross and Bowie is not confected but genuine and Hunt’s egregious error will not be corrected? What then, do they resign to show they shall not put up with being either blindsided, or worse, informed but ignored?

The Conservatives have fallen into this mess because they have on so many occasions in the last 14 years abandoned any coherent approach to economic policy.

It would be a fair defence to say consistency is difficult when you manage to have five prime ministers in the space of nine of those years – were it not for the fact that all of them claim to believe in prudent public finances and low taxes.

Yet it was the Conservatives who introduced their windfall tax on oil and gas production in 2022 as one of their regular wheezes of stealing a Labour policy so they might ride a populist wave Labour could benefit from. Readers may recall that Russia’s invasion of Ukraine had led to a spike in oil and gas prices and the inevitable sanctions sent those prices even higher. The energy companies, who take risks with investors’ capital to produce oil and gas through both peacetime and wartime, stood to receive some unexpected profits – but following periods of big losses or poor profits during the Covid pandemic.

Taxing those surprise, one-off profits was, Labour argued, only right, while Conservative politicians argued it would be folly, just as it would be folly to bail out the same companies in times of hardship.

No doubt a Tory strategist did some polling and discovered the public thought Labour was right, for suddenly the dead monster that was the oil and gas windfall tax was brought back to life by Chancellor Rishi Sunak.

As the invasion commenced in February 2022 gas had spiked at £455 per therm and later reached £640 in August 2022, but it fell below the pre-war level by the end of the same year. It has remained lower ever since and is now at £66 per therm. The story for oil is the same, Brent Crude was at $93 before Russia’s invasion and spiked to $119 by June 2022, but has been below the pre-war price since November 2022 and is today at $82.

Any quick windfall profits should have worked their way through energy company accounts within the same year it happened – unlike the Covid pandemic, which produced lower energy demand and prices, with consequential losses for two years.

So, why do we still have the oil and gas “windfall” tax? Why not go back to the old normal? Or could it just be our politicians are addicted to the revenue, or see it as a means to accelerate our shift to net zero by discouraging oil and gas production – for that is precisely what the windfall tax is achieving as energy-related businesses close, jobs are lost and the cost of living crisis bites.

This baleful Tory record is not just on income tax, it is not just on the energy windfall tax, it continues to this day through the “windfall” tax placed on British-based banks way back in 2011 to contribute towards the costs of saving various banks.

Yes, some 13 years later, long after the 2007-08 financial crash in part caused by many banks – but also by reckless governments who encouraged bad loans and neglected their fiduciary role in oversight – the banks are still paying a “bank levy” and a rate of corporation tax 3 per cent higher than other businesses.

This sleight of hand is not just dishonest – the crisis is long passed – but self-harming, for the UK economy relies especially upon its financial services sector to lead our economic growth. We should encourage our banks to be successful and attract investment, not treat them differently by punishing them so foreign banks have a competitive advantage.

Labour and the SNP would have behaved no differently; indeed, in many respects their policies would be far more harmful – but we should expect better from Tories who profess to support markets, small government and low taxes. Douglas Ross and Andrew Bowie should stand up to Hunt and Sunak.

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