Sunak must impose exceptional tax on oil companies – if only to save his career | Philippe Inman

Rishi Sunak is on the ropes, and not just over accusations that he has been less than transparent about his and his wife’s personal finances.

The Chancellor appears to need only a top hat and a jacket to complete his transformation into a hard-faced Victorian financier, aloof from the concerns of ordinary people. Details of his expensive homes, cars and vacations abroad only reinforce the image of a minister out of touch with his constituents.

If he listened to the radio phone calls during the day, he would hear the personal stories of hungry and trembling families weakened by the cost of living crisis. These callers are selling cars, not buying them. They delay visits to the laundromat for cost reasons and are in arrears with debt.

The increases in housing taxes for more than five years have contributed to raising the cost of living, as has the freezing of income tax thresholds. An increase in National Insurance this month is another added cost, although the Chancellor will point out that she exempts low-income families. He forgets they are already underwater after losing £20 a week of their Universal Credit income last year.

To escape criticism, Sunak draws attention to the only major element of the economy considered a success: the job market. Almost everyone who wants a job has a job. What could be better?

Apart from the fact that unemployment figures are flattered by 500,000 people dropping out of the workforce, and a lack of decent sick pay means many people with Covid are working when they should be at home recovering, the fact is that most people complain about their dire circumstances are at work.

Most analysts expect this week’s labor market figures from the Office for National Statistics, covering the three months to February, to record another month of falling unemployment. But the data will show that inflation-adjusted wages are also falling.

In January, wage growth excluding bonuses was 3.8% among employees. At the same time, the consumer price index increased by 5.5%. The situation in February is likely to be worse as wage growth stagnates and inflation, which we already know reached 6.2% that month, continues to climb towards 8% or more.

In the fortnight since his spring statement, Sunak has refused to adopt any new measures to ease this financial pressure on households. It will not restore the £20 per week universal credit cut or increase the council tax refund by £150. The £200 cut on energy bills in October is still a loan. He says the government’s finances are precarious, amid a modest rise in debt bills.

One response could be to impose a windfall tax on North Sea oil companies, which could easily raise £4billion, to offset the worst of household inflation. But again, he refuses.

Business Secretary Kwasi Kwarteng has spent more time than Sunak rejecting opposition parties’ calls for such a tax, saying they misunderstand how business works.

Let’s take this statement head on and ask ourselves what windfall profit means to a business. It was a question posed by economist Olivier Blanchard – the former chief economist of the International Monetary Fund, who is still a driving force at the Washington-based Peterson Institute – in the 1990s. He found that windfall profits n were not used by companies to finance investments because they were by definition unsustainable. Investments are planned for five years or more and based on expected profits over that period, particularly in the oil and gas industry.

However, if excess cash was held instead of invested, the company could become a takeover target. Another option could be to reward the bosses with the windfall, but the bonuses would not be earned and shareholders would rightly object.

He concluded, after looking at a series of situations where companies found themselves awash with cash, that unless there were debt holes to be filled, the only way to deal with windfall profits was to distribute them to shareholders.

North Sea production companies, all of which are now benefiting from high oil and gas prices, are expected to follow suit.

So it is Kwarteng who misunderstands business, not Labor or the Lib Dems, when he says a windfall tax would hurt investment. He also misunderstands the stock market when he says retirees are shareholders and would not benefit from rising stock values. How can this be when pension funds hold less than 10% of the UK market?

All good chancellors steal the best policies from the opposition, and this is an opportunity where Sunak could do himself a favor. The oil must stay in the ground and the excess profits must be reclaimed by those who generated them – the public.

The government will surely do something. If he does not tax the companies that profit most from the war in Ukraine, the local elections in May could mark a turning point.

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