Will the EU windfall tax change how the UK deals with rising energy prices?

The European Commission’s example will increase political pressure on the government to relent over its opposition to such a tax, writes Sean O’Grady

A little more than a decade ago the banking crash and subsequent euro crisis was supposed to break the European Union. Around six years ago, Brexit threatened to destabilise the union again. So did the migration crises. And later so did the Covid-19 pandemic. In February this year, the Russian invasion of Ukraine and the energy crisis triggered another period of doubt.

And yet the European Union, for all its flaws and tribulations, is still standing. The sanctions on Russia, the drastic severing of gas supplies to Europe, and the soaring cost of hydrocarbons were supposed to have placed such intolerable strains on any sense of solidarity that the political independence of Europe would be threatened. Nato was the backstop in the face of a Russian steamroller that at one point was heading westwards.

Yet now, the EU and Nato are stronger and more aligned; and the European Commission has secured agreement among member states for a windfall tax on energy company profits to “cushion the blow” of the crisis. Some €140bn (£121bn) will be raised from the levy, which will help to defray the huge cost of supporting households and businesses in the EU from the effects of the shortages.

What’s more, commission president Ursula von der Leyen and the German government, in particular, have made great progress in saving energy and preserving stocks of gas, in preparation for winter. The influence of the EU has also helped to push member states towards sending more financial and military assistance eastwards.

Sweden and Finland have also joined Nato, After an uncertain and sometimes disappointing role during the Covid pandemic, the European Commission has redeemed itself.

From the point of view of Britain, the EU move can be taken both ways. Most of the public (according to the opinion polls) favour extending the existing windfall tax, as do all the opposition parties. For them, Von der Leyen’s success proves the practicality of the approach, and, at least for some, a reminder that Brexit has been a mistake, and Britain could have contributed to the decision-making which will affect the UK. For the government and “Leavers” (if that word has much meaning by this juncture), it is a reminder that the UK is free to take its own decisions, with government answerable to parliament and the people. It is, in effect, the sovereignty argument made real.

For what it’s worth, the EU example will increase political pressure on the government to relent on its adamantine stance regarding a windfall tax. Or, rather, it would increase political pressure if politics had not been suspended for the duration of the regal mourning period. Parliament does not return (as it stands) until 17 October to the dismay of some. By that time, events will have moved on.

With luck, the energy crisis might even be receding if the war in Ukraine continues to proceed as it has recently. If not, and if the energy crisis actually worsens, then the government may have to think again, if only because it is running out of room to borrow such huge sums of money.