Economics is not a morality play. Don’t take my word for it – Paul Krugman said it first. In a 2010 blogpost I for some reason never forgot (alongside a host of random Arsenal scores from the early 2000s and Taylor Swift bridges), he wrote:
“It’s not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity — a pretty good system most of the time, though not always — with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty”.
He was referring to the austerity debate of the 2010s, but it can be applied more broadly. For instance, you will recall that certain banks and borrowers that displayed reckless behaviour were bailed out by the taxpayer during the Global Financial Crisis, because while unedifying and expensive, it was still cheaper than the alternative. Savers, meanwhile, saw interest rates plummet.
In that vein, windfall taxes are often bound up in questions of morality in a way that fuel duty or congestion charging tend not to be. The fiercest critics of windfall taxes seemingly get less excited by questions of their economic efficiency, whether they might negatively impact future investment or the potential downward pressure on share prices and therefore pension funds. Rather, their problem is that it is not moral for the government to take money from profitable firms after the fact. I mean, won’t somebody please think of the children?
The thing about windfall taxes is that the clue is in the name. They arise when firms enjoy windfall profits not as a result of any direct action or marketing genius but due to unforeseen external events – say a supply shock caused by a war of aggression undertaken by a major supplier of gas.
The question of a windfall tax reared up again today as Shell reported its second-highest quarterly profit on record (with plans to buy back billions more shares and raise dividends). Following this, the prime minister faces pressure to extend the current 25 per cent tax on the oil and gas giants.
For what it’s worth, even the outgoing boss of Shell, Ben van Beurden, has called such a tax “inevitable” because “one way or another there needs to be government intervention that somehow results in protecting the poorest”.
At a time when the government appears likely to cut spending and raise taxes, it seems odd to lean on questions of morality regarding a windfall tax. While such an extension would not, to go full journalese, plug the fiscal black hole, it would certainly help. Not least at a time when the government is umming and ahhing over whether to uprate benefits by inflation.
If you’re wondering what the situation is with the initial windfall tax, Shell announced today that it has avoided paying any extra tax and does not expect to do so this year because of investments it has made in the North Sea, under a rule which allowed companies to gain tax relief in exchange for capital investment.
It turns out my parents were simply paraphrasing Krugman when they delighted in telling me as a kid that life is not fair.
In the comment pages, Sarfraz Manzoor, who had his first child at 40, reflects that from play fighting with his son to endless negotiating with his daughter, fatherhood is a young man’s game. While Rohan Silva says he learnt the hard way how Labour fail on diversity.
And finally, she was the fake heiress with a knack for conning New York’s finest into paying for whatever she fancied — until she went to jail for it. Now Anna Delvey is out (sort of) and tells Susannah Butter why she’s really not so awful after all.
