Windfall tax for UK energy firms may prove costly

According to published reports, energy firms have made significant profits from recent oil prices that were unusually high. It seems that UK is preparing for a windfall tax that would redistribute some of those profits to the public.

Although in theory that sounds like a good idea, there is more to the truth than that just more funds for the public purse. In general, windfall taxes are worrying and perhaps even counterproductive means for sponsoring social justice.

The price of gas has almost doubled since 2000. In the meantime, electricity costs have gone up by 61%. Yearly spending on household energy is tagged at 1200 pounds for each home. Subsequently, reports indicate that more people are victims of fuel poverty. This means they will not be able to heat their homes efficiently as energy prices continue to climb.

But, analysts say that while the costs to ordinary consumers from higher petrol prices and higher heating costs, energy firms have raked in increasing profits. Campaign group Compass notes that the major UK energy providers have had profits go up from 557 million pounds in 2003 to a whopping 3 billion pounds this year.

Even larger are the profits of oil firms. For example British Petroleum has had its profits increase by as much as 23%. Meanwhile, Exxon’s latest quarterly results revealed profits of a record $11.68 billion for the period April to June 2008.

Analysts say that big energy firms have taken in higher profits at the expense of consumers who are spending more money for their energy needs with already stretched incomes. And the windfall tax is a proposal to cushion or offset some of those unusually high-energy costs to consumers.