Why the windfall tax trades on the public’s ignorance

Prime Minister Tony Blair is adamant that his priority is ’education, education, education’. He has a case. It is to be found in this week’s Queen’s Speech proposal for a windfall tax on privatised utilities. No Government, living in an economically literate nation, could ever get away with this rank appeal to prejudice.

Prime Minister Tony Blair is adamant that his priority is

’education, education, education’. He has a case. It is to be found in

this week’s Queen’s Speech proposal for a windfall tax on privatised

utilities. No Government, living in an economically literate nation,

could ever get away with this rank appeal to prejudice.



First, let me get my prejudices out of the way. I hold the minimum

number of shares in eight privatised companies. Most of them have done

well but I would not be flush if I sold them and they most certainly

won’t keep me in senility. I do not have a principled objection to

windfall taxes.



Margaret Thatcher’s first government imposed one on the banks who were

benefiting from high interest rates, although, to be fair, they had to

shell out to persuade investors to save with them.



We do not, of course, yet know how Labour defines a utility - or how it

can justify excluding all 50 or so privatised industries from its

proposed tax - or how the tax will be levied. But the suspicion is that

what we are seeing is the vindictive socialism, not to mention economic

ignorance, fighting to escape from ’New’ Labour.



Let’s just look at the water industry which for most Labour folk was a

privatisation too far, even though nationalising that other ’staff of

life’ industry - bread - would never occur to them. It is said that

water was floated too cheaply. But those who made killings from

immediately selling their shares in 1989 have already had their capital

gains taxed.



Justifying a windfall tax on the flotation price also ignores the risks

associated with the huge capital investment required of these regulated

monopolies. That capital investment - pounds 17 billion worth of it -

has materialised since privatisation eight years ago and a similar

amount is planned for the next ten years. Investment on that scale - the

largest environmental programme in Western Europe - needs profits. And

two-thirds of them are ploughed back. Privatisation is making good the

chronic neglect of public ownership. Is that a good reason to tax the

profits which have, in any case, been sanctioned by the regulator?



And what might be the effect? Higher charges? The punters would not

think much of ’Trust me Tony’ then. Lower returns for shareholders? They

might take their money elsewhere. Lower investment? What, just when the

environmental benefit is being acknowledged in cleaner beaches? It would

also be self-defeating, given Labour intends to use the windfall tax to

create jobs.



Consequently, we have to ask ourselves whether Mr Blair really knows

what he is doing? Or is he trading on public ignorance - or on the

ignorance which industrial PR’s refusal to argue the case for capitalism

allows?



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