Is the government about to toughen up its windfall tax? That’s the talk in Westminster today as Chancellor Nadhim Zahawi and Business Secretary Kwasi Kwarteng meet energy company executives to discuss measures to tackle the rising cost of living. The government is reported to be looking to strengthen the 25 per cent levy on the industry’s record-breaking profits announced in May. A Treasury source tells the Sun newspaper: ‘If you look back at what these firms were projected to make and what they actually brought in, it was beyond their wildest expectations. We are looking at options to go further and faster on those profits.’
It comes as Boris Johnson – along with the two Tory leadership contenders – comes under pressure to announce new measures now rather than wait for his successor to enter 10 Downing Street in September. Since the tax – which was first suggested by Labour – was announced to the dismay of many on the right who view it as wholly unconservative, oil and gas companies have announced larger profits than expected as energy bills are predicted to rise.
A Truss source distances the campaign from the latest Treasury proposals
Only there’s a problem. Ultimately Johnson won the support of MPs to stay in Downing Street over the summer by promising not to make any big calls on new funding or policy direction. On the morning media round, Education Secretary – and Truss backer – James Cleverly was keen to emphasise that the meeting is ‘part of the short-term response’ and that no ‘very big policy-changing decisions’ will happen until a new leader is in.
It’s why even if the Treasury does try to act now, expect the measures to meet serious resistance or risk being rather short-lived. Liz Truss, the frontrunner in the contest, told Sky’s Kay Burley last week that she was against a further windfall tax on oil and gas firms as the UK can’t have ‘a reputation for levying a surprise tax on any industry that makes a profit’. Her likely candidate for chancellor Kwasi Kwarteng is also opposed to the idea – repeatedly speaking against the idea of a windfall tax both privately and publicly when Sunak first introduced it.
A Truss source distances the campaign from the latest No. 11 proposals – telling Coffee House:
‘Rishi’s answer to every problem is more tax and it’s no surprise that in its dying days Rishi Sunak’s Treasury is attempting to use its final breath to force through new taxes that would make bills higher, make it harder to attract new oil and gas investors and prevent new sources of energy emerging. This is Treasury officials freelancing. Distracted by planning a leadership campaign, Rishi Sunak has failed to grip the energy crisis.’ They also criticise Sunak’s economic approach more generally: ‘The key to tackling the squeeze on household finances is economic growth, but where has the plan for growth been from Rishi? He had two and half years as Chancellor to get growth going, to undertake bold supply side reform, and failed.’
Now it’s worth pointing out of course that Sunak is no longer in the Treasury – and hasn’t been for some time. What’s more, the person who inherited Sunak’s windfall tax Nadhim Zahawi – who is backing Truss – isn’t so averse to them himself, he suggested at cabinet while education secretary that windfall taxes could be extended to supermarket petrol forecourts given their profits. In that vein, the Sunak camp respond by suggesting Zahawi’s decision to go on holiday last week has meant he needs to now ‘catch up with Liz on her position on windfall taxes’.
Yet the fact the Truss camp are keen to paint any strengthening of the windfall tax as a Sunak legacy product points to how they plan to adopt a new approach. A Truss government would not continue this direction of travel. What’s more, there are some around Truss who even question how long the original windfall tax would remain in place should she enter No. 10.
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