Major’s windfall tax idea is as silly as Miliband’s energy price cap
EVERY so often, when I get depressed about the state of contemporary British politics, I begin to recall with something close to fondness Sir John Major’s time as prime minister from 1990 to 1997. These days, others have also started to make the same mistake, perhaps unsurprisingly.
Much of Major’s 1997 election manifesto was lucid and radical in comparison to anything the Tories have to offer today; he cut public spending as a share of GDP and slashed the budget deficit; he presided over a dramatic economic bounce-back; he was surrounded by a number of high-calibre cabinet ministers; he began the long fight-back against crime; and as a self-made man, his pitch to the voters was quite different to the nonsense we get these days from an increasingly unrepresentative establishment in Westminster. The post-1992 UK economy went through something of a golden age, thanks to the legacy of reforms undertaken in the 1980s and 1990s.
Fortunately, by the time I reach this stage in my thought process and have almost convinced myself that Major was a far better Prime Minister than any of us realised at the time, reality suddenly hits me, and off come my rose-tinted glasses. Major had many good points, of course, and defeated the appalling Lord (Neil) Kinnock in 1992, but his time in office was also marred by a series of disastrous decisions for which we are still paying the price for today.
He signed the misguided Maastricht Treaty, triggering the Euro-wars that continue to tear UK politics apart and fuelling the rise of Ukip; he backed the Exchange Rate Mechanism, which inflicted an appalling recession on the UK and base rates of 12 per cent until sterling was mercifully thrown out on White Wednesday on 16 September 1992, annihilating the Tories’ reputation for economic competence for a generation; he introduced VAT on domestic fuel (oops); he failed to control his party’s endless sleaze scandals; he pursued a “back to basics” campaign which imploded under the weight of its own hypocrisy and set back genuine thinking on welfare reform; and he was eventually wiped out in 1997 by Tony Blair, with the Tory vote down to just 30.7 per cent.
So forget all the revisionism. Major was a poor Prime Minister. A reminder of his limitations was his attention-seeking call yesterday for a windfall tax on the profits of energy companies. His main argument is that energy companies’ profits are too high and that they shouldn’t be increasing their prices as much (ironically, he hiked VAT on domestic fuel from zero to 8 per cent).
The first part of the argument is wrong: margins are lower than in other industries, at around 5 per cent. Competition is too weak, however, encouraging inefficiencies, poor service and general incompetence; but the answer is to make it easier for customers to switch and lower barriers to entry for new companies, not invent yet another tax that will end up being passed on to consumers.
The second part of the argument is also nonsense: anybody sensible agrees that prices are too high. The question is why. The recent price rises are being driven by government mandated investments and green rules, as well as by wholesale prices. I read and re-read the transcript of Major’s comments; he didn’t once mention the impact of decarbonisation and other Labour/Coalition green policies. The fact that he cannot see the real cause of the energy price hike is shocking.
Windfall taxes on profits are a bad idea. They create uncertainty and penalize success. Why invest if you won’t be able to reap the rewards? It’s better to grow fat and bloated, rather than maximise profits by being more efficient. Ed Miliband’s price cap idea and Major’s tax idea are equally daft and destructive and proof that emotion, rather than reason, are now the guiding force in our pathetic “debate” on energy policy.
[email protected]
Follow me on Twitter: @allisterheath