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Cherchez le windfall

Robert Peston | 19:11 UK time, Thursday, 4 September 2008

The Prime Minister may believe he's waving a loaded weapon when urging the power companies to cough up and help those finding it difficult to pay their energy bills.

But what they can see in those nail-chewed fingers is a loaded banana - and they don't feel terribly intimidated by it.

Or to put it another way, they don't believe that there's the faintest chance that he can levy a windfall tax on them.

And - which rather adds to their swagger - nor does the Treasury (although that doesn't impress the army of Labour backbenchers baying for a punitive levy).

What puts the kibosh on the tax is something rather basic: for most providers of gas and electricity to the likes of you and me, there is no windfall.

If they owned vast amounts of oil, gas or even coal which was being extracted within the UK, then there would (arguably) be a very substantial windfall profit that could perhaps be raided by the Exchequer.

But much of this stuff comes from other tax jurisdictions. And, anyway, the diminishing oil and gas that is pumped from the North Sea is already taxed at a very substantial rate.

So those big increases in domestic gas and electricity tariffs announced recently by Centrica, Edf and the rest are hard, in all fairness, to characterise as profiteering, much as we may wish to see them as such. The increments are attempts by those companies to limit falls in their profitability caused by the increase in what they pay for the power they sell.

No windfall: no windfall tax.

But what about the other great wheeze being pondered in Government, that of charging the companies a fat sum for permits to spew CO2 under the European Emissions Trading Scheme?

Well, that's no doddle either.

First, ministers fear there could be a challenge to such a re-writing of the permit distribution system from the European Commission in Brussels.

Second, our eurozone-owned power companies would fight such a levy with all their might, for fear that the French and German governments would introduce copycat charges.

As I say, that's a loaded banana sticking out from Gordon Brown's jacket pocket.

Except for one thing. He believes that the appalling public image of the power companies might persuade them to do the decent thing - as he sees it - and simply volunteer to hand over vast amounts of wonga to provide succour to beleaguered energy consumers.


It's a thought. But the Government's great announcement on its partnership with the power companies to tackle fuel poverty was supposed to happen this week and has been postponed.

And although it's not officially dead, ministers and power-company execs are cautioning me that they don't know when - or even whether - a deal will be struck.


  • Comment number 1.

    I think the British public is very "cest la vie" about the price of energy these days.
    Everyone is accutely aware that its never really going to get any cheaper.
    Not unless we discover a trillion barrels of oil underneath Essex.
    The windfall machine would get going then.
    And who to tax???
    Company A gets it out of the ground, Company B transports it, Company C processes it, and Company D is just a billing organisation.

  • Comment number 2.

    The energy and utilities should never have been privatised. They are natural monopolies and most countries have accepted that they should be state owned.

    Not a windfall tax just re-nationalisation is the answer!

    (What was the question - oh yeah, is the windfall tax dead - yes, as is the prospect of re-nationalisation! I am sorry to say.)

  • Comment number 3.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 4.

    it'why are energy companies singled out. ok so energy is an essential, but so is food and shelter and clothing, so slap big taxes on Tescos Next and Wimpey homes...oh and force them to sell their goods to the poor at a subsidised rate too as per the energy companies. energy companies are having to do the govts dirty work for them...i don't see the govt rushing to remove VAT from energy to help the poor out.


  • Comment number 5.

    "big increases in domestic gas and electricity tariffs are hard to characterise as profiteering... The increments are attempts by those companies to limit falls in their profitability"

    Well I for one am heartened by the fact that the profits of these corporations won't be allowed to suffer in these recessionary times. I'm sure the British public agrees too even though the profitability of their hard work is declining rapidly due to the soaring cost of living. The profit of corporations should always come before the wellbeing of the general public.

  • Comment number 6.

    Not so much a comment on the blog itself, but on the first comment: "Everyone is accutely aware that its never really going to get any cheaper." Ten years ago, nobody could see oil prices rising out of the teens and oil companies were merging to stay afloat. You and I have no clue what may happen in the next ten years.

    Speculating wildly: gas and oil demand may be pegged if technologies like clean coal become economic; electricity production may shift increasingly to sources which don't depend on oil and gas and could conceivably even become a competitive domestic energy source to gas hitting demand further; electricity from wind, wave, solar, nuclear, and coal does not become significantly more expensive when the cost of oil doubles; the hydrogen economy may emerge as viable; and "they" might even get it right with bio-fuels one day.

    Returning to the original blog. The main reason that the energy companies can ignore Gordon Brown is that his government is a dead man walking, no electoral mandate and no popular support. It energy policy was in disarray when times were good, it has no stomach for messing now and dare not be seen to make things worse.

  • Comment number 7.

    I really don't know whether to laugh or cry - and this from the so-called Iron Chancellor. It is pathetic.

    The fact is that Brown is fast running out of options. The economy is in free fall and in the months to come he will face growing unemployment, house repossessions and people unable to pay increasingly extortionate utility bills. Where does he think he will get the money from to deal with the crisis?

    These companies with a licence to print money have taken us all for a ride and now have Brown over a barrel. He is like a rabbit caught in the headlights.

    For a decade, the public has been seduced into thinking that they can subsidize their poverty wages with ever more imaginative ways to borrow, but now that the music's stopped, rip-off Britain is about to be cruelly exposed.

    Iron Chancellor? More like Rusty Chancellor!

  • Comment number 8.

    "limit falls in their profitability" yup, the share dividend seems to be the big issue for the power companies ---

    --- does that lust for profit also stop them worrying about our over consumption of fossil fuels ?

  • Comment number 9.

    no ability to even push this policy. A hollow government indeed,unable to control events and left at the mercy of everybody.

    And yet there is an urgent need for firm action to create a viable and realistic energy policy before the lights start going out in 4 years time.

    Of all the legacies for Labour to leave the country, perhaps that would be the worst of all.

  • Comment number 10.

    There are a few points:

    1) As a vital public service are the power companies making an excessive profit? (Adam Smith had a modest 10% as a natural profit - I doubt the gas companies are doing the same despite a brief period of losses)

    2) As gas is tied to oil wouldn't it now be sensible to break the tie for a brief period so that vital gas can be supplied at a reasonable rate?

    3) The gas companies are involved in shameless profiteering with their 'freeze price deals' which hold prices at a level when the oil spike was peaking. Taking advantage of people's fears! They should be held accountable.

    4) NEWSFLASH! Britain is self-sufficent in gas and the reason why we sell it rather than re-patriate it cheaply is storage. We don't have the storage for the gas we produce and this means that we have to buy OUR OWN GAS back from the international market.

    Obviously, to deal with any of these issues is complex and fraught, and would be fought all the way, but these are areas to look at. And the government should not be afraid of strong action. The gas companies profit rebuilding is having an impact in other areas (inflation, wage demands) and, for once, their public role should be recognised and a duty of some sort enforced - not meaning in the windfall tax sense entirely.

  • Comment number 11.

    I forgot, the oil spike is over and deflationary pressures are gathering, but oil prices aren't coming down! Surprise. Shouldn't gas prices be coming down too? No! Why is it price rises to maintain a level of profitability when commodities go up, but the same profitability level link is thrown out when commodities reduce in price?


  • Comment number 12.

    If there are no windfall profits because energy companies are only passing on inreased costs, why are the price increases in UK so much higher than those in the rest of Europe?

  • Comment number 13.

    When will (Labour) MPs learn that there is no free tax? We need another dose of Maggie's handbag - afterall another generation has grown up in Labour's tax and waste.

  • Comment number 14.

    You claim they don't own vast amounts of gas which is why they're not sitting on a windfall. How do you reconcile this with the energy companies' own claims that the reason they've been able to hold off putting up energy prices this long is "vertical integration" i.e. they *do* own the gas fields which mean they don't need to charge themselves full price?

    Personally I agree that there will be no windfall tax but I think your article completely misses the point why not - massive investment is needed to update our sadly dated and inefficient power station network. And that investment just isn't going to come if Brown mugs any energy company stupid enough to try and make money in this country. It might not anyway now his rabid clowns have made them think that he should.

  • Comment number 15.

    It is all very well talking about windfall taxes, that seems to be cheap target.

    Would they provide 'windfall refunds' if the profits dropped?

    In any case, difficult to argue that whilst the govenment are benefitting from higher fuel prices!

  • Comment number 16.

    Ol' Tony really got out at the right time, didn't he. He's such a smart guy...

  • Comment number 17.

    I thought that Corporation Tax was a "windfall" tax. The more you make, the more you pay. If we need a windfall tax it must be that our current tax policy is inadequate. Remind me who has been responsible for tax policy since 1997 until recently!

  • Comment number 18.

    Hmm, so British Pension Funds already smarting over Bank Share losses will now have one of the few performing Shares in their portfolios robbed by the Government.

  • Comment number 19.

    Remember most of the Shares in the big energy companies are owned by Pension Funds.

  • Comment number 20.

    Our Economic slowdown is to a large part caused by Britains reliance on domestic consumers.

    Domestic Consumers have for the most part had their salaries increases held below the rate of Inflation (eight percent).

    This means the Consumers have less money toi spend so the economy falters.

    Of course keeping the Public Sector pay rises to two percent (a big pay cut, except MPs and the BBC (four percent I think they had)), will have a big downward drag on the economy.

    This is ironic as to give the Public Sector a FAIR pay rise would only cost a couple of hundred million, whereas wars and bailing out failed Banks have cost the Taxpayer Billions.

    Fair pay for Consumers would improve our economy.

    Expecting trickle down from a handful of wealthy families (getting a smaller number each day as the economy collapes) to produce the Consumer demand needed is not going too work as there is just not enough of them.

    So come on Mr Brown, treat your staff right !

    Give the Public Sector a pay rise that matches Inflation and that will kick start the rest of the economy !

    Don't pinch pennies whilst squandering the pounds !

  • Comment number 21.

    I'm sure he would not wish to go down in song and ballad as the PM (pinchpenny minister) !

  • Comment number 22.

    Gas and electricity are convenience products produced by entrepreneurs, no different from frozen pizza. If you don't like the price you can change supplier or get a barbecue and some candles. The biggest problem is water where we still have monopolies - if govt cared about utility prices it would fund a national water grid.

  • Comment number 23.

    This is great news for the Welsh valleys - all Brown needs to do is to name the date for re-nationalising the mines, and we can all start digging again. And those call centers can get back to the South East, where they like chatting on the phone and sending emails for a living.

    Welshmen, on the other hand, like digging for coal. And it's about time the government started backing them, instead of backing Russian oligarchs. C'mon Gordon, be a hero. Open up the mines and let’s all get back to normal.

  • Comment number 24.

    Interesting comments, but why do you have to use these awful media village words like 'wonga' and 'moola'? You are a good, literate journalist. Please write like one.

  • Comment number 25.

    Hummm ... a windfall tax appears to mean ... "Oh you have been successfull and made lots of money, I think I'll go and take some of that off you and spend it".

    Lets see now ... if you kept too much money in your bank A/c and thus you bank decided you had too much and so too a chunk of it away ... what would you call that ... I believe that would be theft.

    But when a large company is a success and you propose to take that profit away ... its called a "tax" ... consider that theft, not tax.

    We need to decide .. do we live in a free market, or do we go back to 1930s Russian style economic management.

    Remember ... the more they make, the more corporation tax they pay ... if we get greedy and take too much, you motivate them to close shop and go conduct business elsewhere. Taking their profit is a direct attack on our own best interests ... it takes money out of our penson funds who are the primary sharholders for most of these companies.

    And least anybody wonder, no I don't work in oil or have any connection with any of these companies. Nor do I own shares in any. But I do have a pension fund that is shrinking and don't wish to see it shrink any further because labour has taxed and spent and now needs to tax and waste even more.

  • Comment number 26.


    As someone working in this sector, I am delighted to read your comments on energy. A major indictment of this government - and indeed of its predecessor - is a policy chasm over energy. As a result, it is no exaggeration to say that we are sleepwalking into an energy disaster.

    Here are some of the issues at stake:

    - Nuclear provides 26% of UK electricity. 2 of the 8 stations close in 2014, and 2 more in 2016. It is not possible to build replacements in the time remaining.

    - No nuclear strategy? Government accepts the need to replace nukes, but expects someone else (hopefully EDF of France) to supply the technology and investment. We can't afford to do this ourselves, apparently, but we can afford a GBP 9bn Olympiad. The sell-off of Westinghouse was idiotic.

    - North Sea gas production is falling rapidly. We imported a fifth of our gas needs last year, rising to half in 2010 and three-quarters by 2015.

    - LNG is not a viable strategy, since so many countries (including the US and China) are banking on LNG; supplies are limited.

    - Short of running out, the only option appears to be gas imports from Russia. This being so, a more pro-active attitude towards that country might be politic.

    - Cost. With net imports of oil as well as gas rising rapidly, the cost of buying foreign energy will escalate. The trade balance will worsen steadily as a result. What, exactly, do we sell in foreign markets that will earn the additional funds to pay for imported energy?

    Failure to address the looming energy deficit is idiocy. The idea of imposing extra taxes on the very same companies whom we expect to build us out of the energy crunch is puerile.

    In fairness, the black hole in energy policy cannot all be blamed on the present leadership. Tony Blair did nothing about this for more than ten years. And it was not Labour who closed the coal mines and permitted both the 'dash for gas' and the export of gas, and the resulting increased reserves depletion, for short-term gain.

    But blame is not the issue. The issue is the urgent need to find a policy and to build a balanced portfolio of energy supplies for the future. Windfall taxes would be a distraction at best and, at worst, a deterrent to urgently-needed investment.

  • Comment number 27.

    There is a petition on the Downing St website asking the government to invest in Heat Pumps, which can potentially supply all our heating requirements with zero carbon imprint, at a fraction of the cost of importing gas, so protecting our energy security and ending fuel poverty for good.

  • Comment number 28.

    re 27:

    another con.

    Do you really think a pump will run on nothing?

    Do you know how a heat pump works?

    Do you believe you can get something for nothing?

    Do you believe anything this Govt says?

    Good grief!

  • Comment number 29.

    What about a windfall tax on estate agents? Footballers? Russians?

    Better still, make crime pay - not only by increasing fines on criminals and law breakers but also by actually collecting them instead of writing them off? It's a scandal that they aren't collected in full. It's just another Labour PR con, being tough on crime LOL. Am I right in thinking Labour have writtten-off about £500,000,000 in fines so far? Google.. £2,500,000 parking fines written off for Scottish people - no surprise there. £12,900,000 in Labour's West Yorkshire... Make crime pay - for us. Only 63% collected in 2002 etc etc

    How about a windfall tax on packaging? Why should we pay for all that recycling when we could just as easily resort to returnable bottles?

  • Comment number 30.

    The energy companies make themselves an easy target for a windfall tax.

    They've spent the last year or so telling us that the wholesale price of gas is linked to the price of crude oil. That was fine and dandy, until the oil price inconveniently fell by 15% in sterling terms - about 25% in dollar terms (because of the falling pound).

    Can I expect a nice friendly letter from my energy supplier telling me that in view of the fall in crude prices, the increase they have just foisted upon their customers is to be at least reduced a bit - if not deferred??

    I'm not holding my breath!

  • Comment number 31.

    The goverment is already getting a windfall tax, its called VAT. As energy prices go up it gets an increase in revenues in the form of VAT.

    The government should be using that to target the fuel-poor. After all thats the role of governments and taxes.....

  • Comment number 32.

    I think that there is a lot of confusion about how the energy companies' input costs work - a situation not helped by their own lack of transparency on supply costs - so some explanation may help.

    The critical price here is gas, which in turn feeds through to power prices as well.

    Historically, UK-produced gas was cheaper than European averages. North Sea gas is still cheaper, but production volumes are declining rapidly, so the mix is changing towards more expensive imports, exterting structural upwards pressure on overall average prices.

    Gas price linkages to oil are not direct, as is so often assumed, and a rise or fall in oil prices today does NOT immediately affect the price of gas.

    Rather, typical contracts are of six months' duration. At the end of each six-month period, the fuel oil price at the end of the period is compared with the price at the beginning, and the price of gas for the NEXT six months is adjusted accordingly.

    This means that recent falls in crude oil prices will not impact gas costs until early 2009, always presupposing that prices at year-end remain below mid-2008 levels.

    It is, therefore, simply not true to infer that recent falls in crude prices have made gas supplies cheaper. This may happen, but not until the end of this year. So energy companies are not failing to pass on falls in input costs; these falls have not happened yet.

    Gas consumption - and hence prices - are far higher in winter than in summer. The way round this is to increase storage capacity so that companies can buy gas cheaply in the summer and then sell it in the winter. There is a pressing need to increase Britain's way-too-low storage capacity - another area of investment that would not be helped by windfall taxes.

    Energy companies do not help their own cause through lack of transparency on input costs. If they do not provide greater transparency, they should be made to do so.

  • Comment number 33.

    None of this computes: Centrica profits down 20%, prices up 35% and dividend payouts up 19%... Customers are being frozen out to ensure shareholders stay warm.

    Even if there were some sort of penalty for their greed, the energy companies will still protect their number one interest - those who invest in extracting money from the general public.

  • Comment number 34.

    There is a small problem with the 'shareholders stay warm' argument, in that the shareholders of the large energy companies are mostly pension funds paying pensions to, er, pensioners - either present or future

    Now current pensioners are paid from gilts generally so they're probably ok. So a windfall tax on energy companies is essentially a transfer out of the average working person's money purchase pension fund and into the hands of the needy,

    You would achieve exactly the same effect by imposing a windfall tax on pension funds, but with slightly more political fallout.

    Of course the best way to ensure the needy stay warm is to ensure that the benefits system is fit for purpose and if it is short of money put up income tax to pay for it. That way the burden is shared by all.

    It's amazingly handy for politicians that economic illiteracy is so widespread. It allows them to pick your pocket will pretending that somebody else is picking up the bill.

  • Comment number 35.

    There should be a windfall tax on apples!

  • Comment number 36.

    There is no free market in energy at the wholesale level and this is where we are being mugged left right and centre.

    There are only a few big energy producers at the wholesale level.

    Since 2003 UK energy prices have been far more expensive than Energy in Europe - the year the expensively built energy pipelines which should have lowered UK prices got turned on!- The UK together with Norway, is the producer of a lot of europes cheap energy - far cheaper than we get it!

    As an aside, another thing I cannot stand is the way that Brown and Labour get away on programmes like newsnight with saying that our grim economy is under some form of seige from 'external factors' - ministers give this scripted reply about high oil prices.

    When will just one interviewer not ask - since we produce nearly all our own oil - how can the economy as a whole suffer from falling GDP causes through high oil prices? Are we not better placed than France, the US or Germany to weather these 'external factors'? Why are we at the bottom of the growth prospects for a recovering economy given this???

  • Comment number 37.

    Re Comment 32 on Gas Prices and oil linkages.

    The price of europes gas is corruptly linked to oil prices because of monopoly power rigging the market. There is no shortage of gas and no reason for Gas prices from wholesalers to be linked to the price of oil which is a totally different commodity.

    The price of US natural gas Aug 21 was $8/million B.T.U.

    The price of UK natural gas was $19.22 a million British thermal units. (Bloomberg)

    The difference is that in the US there is a free market of thousands of gas producers competing with each other. In the UK and Europe there is a EU-controlled fat cat monopoly of a few producers rigging the price.

  • Comment number 38.

    30 years of profits from UK gas and oil. Where has it all gone? Look at our Arab colleagues like UAE and Kuwait and Qatar and Oman - they are not wasting their profits, but instead, investing in infrastructure, technology and leisure for the future when it runs out.

    Just look at the balance of economic power shifting in front of our eyes now.

    Britain must innovate and create and in this economic climate but with an overtaxing government - you do fear the worst for the longer term.

  • Comment number 39.

    The problem the red party has is that in order to stay in power it has to utilise stealth taxes to the maximum. If it were to use direct taxation to finance expenditure then its voters would soon abandon them in favour of the blue party.
    The red party wanted to cajole the energy companies into financing poor consumers this winter. The model they were hoping to copy is that of the motor insurance business where the insurers collectively compensate drivers hit by uninsured drivers. Effectively, insured drivers pay for the misdeeds of the uninsured.

    But the energy companies are greedy. They have figured out that if Britain PLC is to continue as the favourite place for world business to be conducted then the government will not dare to impose windfall taxes.

    So the less well off consumers are caught in a pincer movement. The government dare not tax and the companies are running amok.
    With no direct tax revenues the government will not be able to help them out.

    It will be a cold winter for a lot of people.

    The red party is going to have to decide who is more important; the City or the population as a whole.
    Once the blue party get in then they in turn will have to decide.

    Meanwhile the mega cities being built with oil money in the Persian Gulf will start to get more and more attractive. The skiing resorts are there already. The finance is there. There is no culture of course but that does not matter. The regulatory regimes are being strengthened. Once the flight of capital from London gets going then the whole of the UK will have to stand on its own two feet. But those feet have been sold off..

  • Comment number 40.

    Origial draught
    Their is no reason whatsoever for anyone to pay higher bills for gas ,Just turn the thermostat down to 16 degrees[securing it with superglue] and get a woolly vest and longjohns .

    Houseowners with traditional houses and negative equity[PRoxymorons] are even better placed if they have open hearth surgery

    ie Architraves produce 3 kilowatts per metre and skirtings 5 killowatts per metre ,floorboards should be left till the worst of winter is over, or you wish to show off youre new geothermal trough heating system [grants available],the joists will produce a whopping 15 to 20 kilowatts per hour per metre .

    The average semi requires average 2 kilowatts per hour aditional heat to that
    produced incidentaly by electrical appliances.

    The average human produces 100 watts per hour body heat, so the 10 extra tennants in that spare room will produce 1 killowatt
    Remember your home is at risk if you take this advice seriously and rip off more negative equity than you can burn, or the the uneconomic cycle gets kick started before the government

  • Comment number 41.

    Erm... When the companies and every other organisation bid to be the suppliers, didn't they factor in the costs of replacing power stations and look to the future? Had I been so neglectful of normal business practice I would have been hauled up by my Board, quite rightly. But then my Board was a voluntary sector one, and didn't get huge director benefits. Just sandwiches when we had our monthly meetings.Bring on windfall tax and tax for non-doms.

  • Comment number 42.

    Perhaps the Prime Minister is (as you say) only pointing a loaded banana at the energy companies bosses when he is threatening them with a windfall tax on their excessive earnings and profits and maybe they will put two fingers up to his and the taxpayers plea for them to make this happen.

    If so then perhaps it is time now to pass some form of legislation to peg company profit levels with inflation levels on some form of cost plus basis. It is a complete and utter nonsense for the directors of the large banks and large corporations to keep on playing business games and setting business plans/budgets that are designed to improve profit levels well in excess of inflation levels, simply in order to reward themselves with huge bonuses on the pretext that this is what the shareholders want. That sort of thinking and behaviour helps to stimulate excessive inflation, ensures companies become less efficient and less competitive and incences the ordinary taxpayer. The average worker and company shareholder only expects to be rewarded fairly for their efforts and investments.


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