The unspoken argument behind a windfall tax

The Financial Times story on Rishi Sunak looking at a possible windfall tax on energy firms captures how difficult such a tax is for any government, especially a Tory one. Because it begs questions why, when electricity suppliers suffered unsustainable losses in autumn and winter, when under the price cap they suffered huge and unsustainable losses – what you might call a reverse windfall – they were allowed to go bust.

If you believe in capitalism and competition, you believe in swings and roundabouts: windfall profits in good times are the obverse of extreme losses in the bad. Kwasi Kwarteng repeated that mantra as failing electricity suppliers would not be bailed out. Which presumably means he disagrees with the Treasury on a windfall tax on all energy producers (MPs on the business select committee will presumably ask him about this later today).

But the big point is that a rational government would either conclude that the energy market is fairly well functioning and competitive and would neither rescue the failures nor levy windfall taxes.

Or it would notice that since the privatisation of gas and electricity in 1986 and 1990 there has never been a stable energy market in the UK, there has been constant concern about energy poverty and consumers being ripped off, that the path to net zero is by no means assured, that energy security for the UK is moot, and that even Boris Johnson is talking about investing tens of billions of pounds of taxpayers’ money in long-term nuclear that private-sector investors eschew.

To put it another way, if a windfall tax is intellectually credible for a Tory government, such a Tory government would surely have to explain why full-scale re-nationalisation isn’t a more sensible long term solution.