Windfall Tax (United Kingdom)

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The Windfall Tax was a manifesto commitment of the incoming Labour government in 1997. After 18 years of Conservative rule, which had seen mass privatization of state-owned assets, something to which the Labour party had had an ideological opposition (see Clause 4).

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The tax was a tax on the "excess profits of the privatized utilities",[2] and reflected Labour's belief that the "family silver" had been sold too cheaply. The tax was calculated by means of a 9 times P/E ratio, 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 the total market capitalization based on the company's flotation price was subject to a 23% 'windfall tax'.

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 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 privatized water and sewerage companies (including such companies now forming part of Hyder, United Utilities and Scottish Power).

The tax was charged to the company, and was payable in two installments on 1 December 1997 and 1 December 1998. The tax could be seen as inequitable, as if the company had been sold off too cheaply, the shareholders who had actually benefited may have sold off their shares many years earlier. The money raised, approximately £5 billion, was used to finance the New Deal.

Since 1997, further windfall taxes have been suggested, in 2001 when oil companies made large profits, and in 2006 when banks were seen as making excessive profits. However, no further such taxes have been levied.

There are currently discussion on popular internet forums about excessive UK house prices (e.g. globalhousepricecrash.com) about the possibility that the next target for a windfall tax will be the many indivuduals that now own houses for rental.