Windfall Tax (United Kingdom)
Encyclopedia
The Windfall Tax was a tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 on what were claimed to be "the excess profits
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...

 of the privatised utilities
Public utility
A public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...

" , introduced by the Labour
Labour Party (UK)
The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...

 government in 1997. It followed from their manifesto commitment made during the 1997 general election
United Kingdom general election, 1997
The United Kingdom general election, 1997 was held on 1 May 1997, more than five years after the previous election on 9 April 1992, to elect 659 members to the British House of Commons. The Labour Party ended its 18 years in opposition under the leadership of Tony Blair, and won the general...

 campaign to impose a "windfall levy" on the privatised utilities. The tax came after 18 years of Conservative
Conservative Party (UK)
The Conservative Party, formally the Conservative and Unionist Party, is a centre-right political party in the United Kingdom that adheres to the philosophies of conservatism and British unionism. It is the largest political party in the UK, and is currently the largest single party in the House...

 government, which had seen the privatization of many state-owned assets, at prices which many considered too low. It aimed to "put right the bad deal which customers and taxpayers got from the privatisation of the utilities". The tax produced an estimated one off income to the government of £5 billion, which was used to fund the New Deal
New Deal (UK)
The New Deal is a programme of active labour market policies introduced in the United Kingdom by the Labour government in 1998, initially funded by a one off £5bn windfall tax on privatised utility companies. The stated purpose is to reduce unemployment by providing training, subsidised employment...

, a welfare-to-work program that sought to tackle long term unemployment, as well as providing capital investment for schools and the University for Industry (Learndirect).

The tax

The tax was calculated by means of a 9 times P/E ratio
P/E ratio
The P/E ratio of a stock is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share...

, whereby the average post-tax profit in the four years after privatization was multiplied by 9 to give the value for the purposes of the tax. The difference between this value and the total market capitalization based on the company's flotation price was subject to a 23% 'windfall tax'. The tax was charged to the company, and was payable in two instalments on 1 December 1997 and 1 December 1998.

The companies affected were those privatized by the Telecommunications Act 1984, the Airports Act 1986, the Gas Act 1986, the Water Act 1989, the Electricity Act 1989 (and the Electricity (Northern Ireland) Order 1992) and the Railways Act 1993. The firms affected were BAA, British Energy
British Energy
British Energy was the UK's largest electricity generation company by volume, before being taken over by Électricité de France in 2009. British Energy operated eight former UK state-owned nuclear power stations and one coal fired power station....

, British Gas
British Gas plc
British Gas plc was formerly the monopoly gas supplier and is a private sector in the United Kingdom.- History :In the early 1900s the gas market in the United Kingdom was mainly run by county councils and small private firms...

 (now BG plc and Centrica), British Telecom, National Power, Northern Ireland Electricity
Northern Ireland Electricity
Northern Ireland Electricity Limited is the electricity asset owner of the transmission and distribution infrastructure in Northern Ireland. NIE does not own generate or supply electricity. NIE is a subsidiary of ESB Group....

, Powergen, Scottish Hydro, Scottish Power
Scottish Power
ScottishPower Ltd. is a vertically integrated energy company with its headquarters in Glasgow, Scotland. It was listed on the London Stock Exchange and was once a constituent of the FTSE 100 Index but in 2006 it became a subsidiary of the Spanish utility Iberdrola...

 and Railtrack
Railtrack
Railtrack was a group of companies that owned the track, signalling, tunnels, bridges, level crossings and all but a handful of the stations of the British railway system from its formation in April 1994 until 2002...

, the regional electricity companies and the privatized water and sewerage companies (including such companies now forming part of Hyder, United Utilities
United Utilities
United Utilities Group PLC is the UK's largest listed water business. The Group owns and manages the regulated water and waste water network in the north west England, through it subsidiary United Utilities Water PLC , which is responsible for the vast majority of the group's assets and...

 and Scottish Power).

Since 1997, no further windfall taxes have been levied in the UK. However, calls have been made for new windfall taxes. The Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....

reported in January 2008 that the government was considering ways of maximising returns to the treasury from the sale of the troubled Northern Rock
Northern Rock
Northern Rock plc is a British bank, best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility, to replace money market funding, during the credit crisis in 2007.  Having failed to find a commercial buyer for...

 bank, which could include a windfall tax or the government taking an equity stake. In the event, the bank was not sold on to private investors, but instead came under UK government ownership.

Windfall tax on energy companies

Calls have also been made for a windfall tax on energy companies. Notable supporters of these calls have included the Guardian
The Guardian
The Guardian, formerly known as The Manchester Guardian , is a British national daily newspaper in the Berliner format...

 columnist Polly Toynbee
Polly Toynbee
Polly Toynbee is a British journalist and writer, and has been a columnist for The Guardian newspaper since 1998. She is a social democrat and broadly supports the Labour Party, while urging it in many areas to be more left-wing...

  and the left wing pressure group Compass
Compass (think tank)
Compass is a left wing pressure group, aligned with the UK Labour Party describing itself as 'An umbrella grouping of the progressive left whose sum is greater than its parts'...

. The latter's windfall tax campaign has attracted the support of over 120 (correct of 6 September 2008) MPs. Some media reports have suggested that the government is interested in levying such a windfall tax, while others have suggested that government ministers are opposed to the idea. The BBC
BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...

 reported on 3 September 2008 that such a windfall tax was "still an option".

Alternatively, members of parliament proposed to levy a tax specifically on the profits that energy firms had made through the EU carbon emissions trading scheme
European Union Emission Trading Scheme
The European Union Emissions Trading Scheme also known as the European Union Emissions Trading System, was the first large emissions trading scheme in the world. It was launched in 2005 to combat climate change and is a major pillar of EU climate policy...

.

External links

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
x
OK