‘No-handouts Liz’ now responsible for biggest taxpayer relief in UK history – ANDY MAYER | Express a comment | Comment


They have solved the current concerns of businesses and households, without being too generous, the bills are doubling instead of increasing by 4 to 6 times. The Labor opposition has been neutralized, it is their policy, and the only difference now is who is funding it. The economic aspects are less attractive. The government does not have that money. It’s going to be borrowed from future taxpayers, and despite Labor protests to the contrary, there’s no magic bullet through windfall taxes on energy companies.

North Sea taxes are already three times the normal corporate tax rate, and Labor bizarrely excludes renewable energy companies that make triple-digit profits thanks to old Labor policy. Both, however, would hurt investments in long-term supply, the only sure way to bring prices down.

Having borrowed money to support energy consumption, this consumption will be higher, and with similar programs across Europe, there is a real danger of supply shortages and energy rationing.

It is uncertain, it depends on the evolution of the conflict in Ukraine and the rise of supply outside Europe, but the suppression of price signals has consequences.

This is generally expected to prolong the crisis, even if the impacts are hidden and transmitted.

Passing on means that our energy bills and taxes will be higher in the future. We will save jobs and businesses today at the expense of jobs and businesses tomorrow, and probably more, given the costs of implementing the scheme.

We will subsidize zombie businesses that should fail, alongside genuine businesses that should survive. We reward energy inefficiency and offset the benefits of investing in energy savings.

It would have been better to reduce personal and business taxes, leaving people the choice to use the money to pay their energy bills, to invest in improvements or other things.

It would have been better to target welfare or business support to those most at risk, that’s how the company scheme will evolve anyway, rather than a handout to everyone .

It costs less, keeps the energy price signal and encourages investment in reducing future bills.

But with the decision made and the tax event on Friday, we might get the best of both worlds.

The political wisdom of an immediate global solution on energy today. The economic wisdom of tax cuts and supply-side reforms tomorrow.

Whether it works… time will tell, but all governments need a bit of luck and a decent plan, and our allies in Ukraine just might implement it.

  • Andy Mayer is chief operating officer and energy analyst at the Institute of Economic Affairs
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