The Windfall Tax
This Library briefing gives a history of the windfall tax - a one-off tax on the privatised utilities introduced by the Labour Government in 1997, and the arguments that were raised for and against its introduction. The tax was often compared to the one-off levy on the banking sector introduced by the Conservative Government in 1981; a short appendix gives some details of this second one-off tax.
In his Budget speech on 2 July 1997, the then Chancellor Gordon Brown announced the introduction of a one-off windfall tax on the privatised utilities: BAA, British Energy, British Gas (now BG plc and Centrica), British Telecom, National Power, Northern Ireland Electricity, Powergen, Scottish Hydro, Scottish Power and Railtrack, the regional electricity companies and the privatised water and sewerage companies (including such companies now forming part of Hyder, United Utilities and Scottish Power).
Legislation to this effect was introduced under sections 1-5 of the Finance (No.2) Act 1997. The expected yield from the windfall tax was estimated to be £5.2 billion, payable in two equal instalments on or before 1 December 1997 and 1 December 1998. It was estimated that of this figure, the water companies would pay about £1.65bn, the electricity companies about £2.1bn, while the others would share a £1.45bn bill. Details of each company’s contribution have not been published for reasons of taxpayer confidentiality (HC Deb 31 January 2022 c516W). In the event the tax raised exactly this amount (HC Deb 11 July 2001 c580W). Receipts were £2,610m in December 1997 and £2,614m in December 1998 (HC Deb 19 June 2000 c107W).
For information on the way that profits from North Sea oil and gas production are taxed, and how the relevant fiscal regime has been reformed including the announcement of the Energy Profits Levy in May 2022, please see the Library briefing Taxation of North Sea oil and gas.