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Editorial Labour’s proposed windfall tax makes sense – but energy nationalisation is the long-term solution

LABOUR’S demand for a windfall tax on producers to address soaring energy bills rightly puts the cost-of-living crisis top of the political agenda.

The opposition might thank the circumstance that sent its leader Sir Keir Starmer into self-isolation last Wednesday, allowing colleagues to switch the focus back to runaway inflation and stagnant wages after his bizarrely out-of-touch Birmingham address the day before barely mentioned either.

Since then Labour has hammered away at the intolerable consequences of energy price rises on the current scale. Gas prices per therm by the end of 2021, at £4.50, were nine times higher than at the start of that year. 

Ofgem hiked the price cap by 13 per cent as recently as October and experts warn it may be doubled in April — to almost £2,000 a year. Millions of households will not be able to afford these rises. People will lose their homes, and in the winter more people will die.

The penny is dropping at Westminster as to how serious this is. Last week’s Prime Minister’s Questions saw a rare unanimity among non-Tory parties as Labour, the Scottish National Party and the Lib Dems all hammered Boris Johnson on the cost of living. 

Conservative MPs too are on manoeuvres, with some backing Labour proposals to slash VAT on fuel bills. Johnson’s bid to embarrass Labour by pointing out that this would be impossible within the EU doesn’t get him off the hook: it doesn’t explain why he won’t do it.

The government’s lack of answers is obvious. Johnson feebly tries to deploy the old divide-and-rule ploy so beloved of his party, arguing that cutting VAT is inappropriate because it might also help the better off: a non-argument given that VAT is always a regressive tax that hits the poorest hardest. 

Kwasi Kwarteng has held multiple rounds of “emergency talks” with energy companies without bringing forward anything likely to stop or even limit the increases. 

Education Secretary Nadhim Zahawi has waded in to oppose shadow chancellor Rachel Reeves’s windfall tax proposal, but his plea for us to spare a thought for “oil and gas companies that are already struggling” is unlikely to tug at the heart strings, especially given his own past as an oil industry executive.

North Sea oil and gas producers are actually looking at near-record profits: the surge in gas prices on global markets does not mean they are paying any more to extract the stuff than previously.

Industry experts Wood MacKenzie expect them to post their biggest profits since the bankers’ crash this financial year. A windfall tax on this unearned bounty to help households with their fuel bills is more than justified.

But the labour movement needs to go further, making the case that Westminster Labour won’t. The rise in energy prices is a result of market madness: that millions face penury because the cost of gas is soaring at the same time as British gas producers’ profits are through the roof because their costs remain the same makes no sense.

The case is being made for nationalisation of the energy sector whether Labour will make it or not.

We know that some on Labour’s front bench — shadow climate change secretary Ed Miliband for one — do favour public ownership of a sector key to any green transmission, something companies whose source of profit is the extraction of fossil fuels are not best placed to implement. 

We know a majority of the public support nationalisation. And we know that this would enable the government to protect the public from rapid price rises while investing in proper insulation and renewables to reset this sector on sustainable lines. 

Pressure can be brought to bear on these issues. The government is weak.

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