The Windfall Tax

A Controversial Fiscal Innovation

In it's pre-election manifesto, the Labour Party annunced it's plans for a completely new tax, for which there was no previous precedent - the windfall tax. This is a tax to be imposed on the profits of all monopoly companies, particularly privatised utilities, such as BT or British Gas. These previously nationalised industries (water, gas, electric, telephones) were privatised by the Conservative government of Mrs. Thatcher. They now have virtually total control over the markets. Labour have to raise 33 billion to fund the Welfare To Work Scheme, and proposes to raise these funds by placing a set-level tax on the profits of these privatised utilities. Here is a brief summary of the arguments for and against this tax:

• The so called "fat cat" bosses of these companies are earning phenonmenally high wages, an enormously increased amount from when the industries were state-run. Many of the profits are being creamed off by the governors of these companies, rather than ploughed back into investment and expansion which could create new jobs. There has been much press criticism of this situation, which the Windfall tax could eliminate, or at least limit.
• The Windfall tax will make the marketplace fairer, thus making it easier for new competitors to break in, thus encouraging efficiency in the monopoly companies.
• Monopolies are a threat to the consumer. If they have to bear the tax burden of the Windfall tax, they will become more self-regulating - many people believe that the regulatory bodies, such as ofwat, ofgas and oftel, do not monitor the actions of these monopolies closely enough.
• The increasing competitiveness in the marketplace will bring down prices for the consumer.
• The Windfall tax is aimed at the sector of society most able to cope with it'd payment.
• The Windfall tax will fund the Welfare to Work scheme, which will be a great benefit to society as a whole.
• The Windfall tax will not significantly damage expansion of these industries.
• When these industries were originally privatised, the Conservative government sold them off at prices which they knew to be much less than the shares were worth, in order to get rid of them quickly. As a result, many people are now recieving unfairly large dividends from shares which were purchased at a low price.

Here are the most common arguments against the Windfall tax:

• The so called "fat cat" bosses are in fact earning fair wages for the very stressful jobs which they do.
• These "utilities" are not really utilities at all - anyone can choose not to have a telephone, gas or electricity.
• If these companies were allowed full expansion, they would create many new jobs.
• The Welfare to Work scheme may be a complete waste of £3 billion.
• These "monopolies" are no longer monopolies, the competition now becoming increasingly strong.
• The Windfall tax is undemocratic, unfair and does not encourage free-trade or the work ethic.

I'll leave the final decision up to you!!

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Here are a few of my economic pages which may be of interest:

• The 1998 Budget
• The Welfare To Work Scheme
• The National Minimum Wage

© 1997 zoesymington@mailhost.sol.co.uk

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