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Britain mulls windfall tax on oil firms

A growing number of lawmakers are calling for energy companies to pay for fuel costs borne by poor Britons.

By Mark Rice-OxleyCorrespondent of The Christian Science Monitor / September 4, 2008

Pinched: When fuel costs spiked this summer, British gas stations like this one in Burton moved to ration fuel supplies.

Zheng Linying/Xinhua/Newscom

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London

It's an idea that is tempting politicians the world over, from Barack Obama to China's rulers and Indian parliamentarians.

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Now, the notion of a windfall tax on energy companies to pay for increasing fuel costs borne by poor people is catching on in Britain, where a growing cohort of legislators in the ruling Labour Party is calling for action from Prime Minister Gordon Brown.

It looks like an alluring proposition. Slumping in the polls, Mr. Brown is seeking measures that would pep up his popularity and help struggling Britons cope with the economic downturn. A recent survey found two-thirds of the public favor the idea of hitting Big Oil and energy utilities with a one-time levy to help fund those facing a winter of skyrocketing fuel bills.

But the windfall tax proposals are highly controversial. Supporters say it's only fair that those who have benefited from runaway global oil prices should give something back. Critics say it's a subversion of the very idea of a capitalist market system and point out that no other industry is punished this way. Nor, they say, is Big Oil bailed out when oil prices tumble.

For Brown the more immediate concern is the large group of his own MPs (members of parliament) calling on him to act. At least 80 (enough to make trouble in parliament) have signed a petition, and the issue will loom large over a crucial Labour Party conference later this month, which could be a make or break moment for Britain's prime minister.

'Immoral wages' for CEOs?

Lindsay Hoyle, an MP behind the petition, concedes that companies should have a right to make a profit. "But these are excessive profits and immoral wages being paid to chief executives," he says. A windfall tax is necessary, he says, because "what we are talking about is whether people can have their heating on as we go into winter."

He argues that even though oil prices have retreated sharply from peaks above $140 a barrel, utility companies are still raising prices. Key providers have recently told customers that prices will rise by a third or more as winter approaches.

"There is a credit crunch and we all have to tighten our belts, but [firms] are tightening other people's belts."

The energy industry is protesting that the move would unjustly penalise companies, discourage investors at a time when billions are needed to upgrade energy infrastructure, and unfairly intervene in the normal risk-reward capitalist paradigm.

"The impact of higher energy bills is a problem, but, in today's volatile political environment, we need to think more carefully about how we solve it," says David Porter, chief executive of the Association of Electricity Producers. "A windfall tax would be neither just, nor sensible. It would also send out a very negative signal to investors."

The issue drives at the heart of a fundamental question about capitalist democracies: To whom is a company answerable? The answer is normally those who underwrite its risk – the shareholders. And indeed, if a retailer or restaurant chain suddenly landed in good times with profits soaring, few would call for a windfall tax on them.

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