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Paying for the energy price guarantee has highlighted a deep political cleavage around tax ideology. Reframing windfall as emergency will be critical to leverage a change in direction.听

Tax is always contentious. Debates surrounding who should pay, how much, and where the revenues are redistributed to are the heart of state power and national and global political economies. No one likes paying taxes but seeing tax only through the lens of either powerful interest groups or electoral politics misses the extent to which the contemporary tax debate in the UK, in particular in relation to so-called 鈥榳indfall鈥� taxes on energy companies is driven by ideology. Ideas of tax 鈥� which ones should be levied, at what rate, to whom – are embedded in wider ideas of state and the role of government in socio-economic life. In the UK, political parties that call for higher taxes are associated with an interventionalist and redistributive state, while those who argue for low taxes believe in individual responsibility and markets. But the UK is currently facing an unprecedented economic crisis and the decision not to backdate taxes on the extraordinary profits energy companies have been making to pay for state intervention in energy markets in September 2022 has been based on ideology, underpinned by a set of ideals and ideas, when what is needed is a pragmatic response to an emergency. If opposition parties could move away from the language of 鈥榳indfall鈥� that suggests the need to 鈥榩unish鈥� companies for excess profits and speak instead of the need to come together to respond a national emergency, it might have helped them cut through the government鈥檚 ideology approach. To do so, there are lessons that can be learned from , in this case Latin America.

Tax as Ideology

Less than 24 hours into what would turn out to be the shortest premiership in British history, the Conservative Prime Minister at the time, Liz Truss made clear her position in energy taxes was driven by . During Prime Minister鈥檚 Questions that day, the cost-of-living crisis and the taxes that would pay for any government intervention to ameliorate its impacts took centre stage. Whilst the fiscal details of this latest intervention would not be set out by the Prime Minister until the following day, both Labour and Conservative set out their relative positions in terms of ideology.

Labour Party leader Sir Keir Starmer called for a 鈥榯emporary and targeted鈥� 25% energy and profits levy 鈥� implemented under former Chancellor Rishi Sunak 鈥� to be backdated over oil and gas companies. He labelled this atax on excess profits. Liz Truss dismissed this as ideology (ignoring her own), saying 鈥榯here is nothing new about a Labour leader who is calling for more tax rises. It’s the same old, same old; tax and spend鈥�. She rejected calls to increase the windfall tax over oil and gas companies whilst signalling she would announce a wider raft of business-friendly tax cuts in the weeks . She restated her own (ideological) vision, based on a blanket rejection of all tax increases because, she claimed, taxing business is bad for investment and ultimately bad for .  

The government鈥檚 alternative [original] plan was for an energy price guarantee which would fix the annual energy charge at 拢2500 per energy unit for . This too was informed by pro-market ideology, though rather more subtly. To avoid taxing the energy companies, the funding would come through additional government borrowing. Tax policy has become a key ideological fault line. On the one hand, there is a plan to backdate taxes on business鈥� excess profits, on the other, a plan to borrow now and for consumers and citizens to pay back in future. Unless Labour reframes its approach, it will never escape the charge that it wants to tax the energy companies because it is anti-business and anti-growth.

From Windfall to Emergency

Opposition parties are failing to capitalise on the reason energy taxes are on the agenda. We are in an emergency that could become a 鈥榗ritical 鈥� in our national economy. Critical juncture literatures argue that when there is a deep crisis, space is sometimes created for the introduction of genuinely new approaches to old . It was acknowledged throughout the summer that the country was confronting an emergency and was in crisis because of the scale of the fiscal challenge that British people ; yet the it was also clear that proposed taxes did not match the narrative of emergency. One way out of this ideological impasse is to present 鈥榳indfall鈥� taxes differently, as Emergency taxes, and link them to a more consensual and equitable response to a wider 鈥榥ational鈥� emergency.

This approach has been implemented previously and effectively in the global South especially In Latin America, where economic growth is often predicated on exports of natural resources. Perhaps the most salient example is Argentina in early-2002 in the midst of spiralling economic and political crisis during the aftermath of the world鈥檚 (then) largest debt default. Emergency export taxes were levied on export companies which were, at the time, highly profitable because of high commodity – and they were accepted by exporters of agricultural commodities, as part of a wider package of emergency measures, because of the In this light, emergency bestowed legitimacy on new and higher taxes, and ones that had previously generated intense social and political conflict. Emergency taxes represented over 22% of the total Argentine tax take in and enabled the introduction of a raft of policies to keep people out of extreme poverty.

Of course, emergency taxes cannot last forever; events in Argentina also show that massive tax hikes on key economic sectors cannot be easily made . 聽But there is little doubt that UK needs a similar response now, to see the country though a crisis that will otherwise intensify already deep inequalities, with inflation in the UK in double digits and 6.5 million homes estimated to already be in fuel With the Conservative party in absolute disarray, opposition parties have a small window of opportunity to capitalise on the fact of 鈥榚mergency鈥� and reframe their arguments to cut through the ideological debate and leverage a change of direction so that the poorest in society are not left to shoulder the future burden of interventionalism.

Matt Barlow is聽an ESRC postdoctoral fellow in the Department of International Development, King’s College, London. He tweets at .听

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