Don't complain about 'wicked' oil companies

Shell is an oil company and therefore, in the popular imagination, it is by definition a wicked conspiracy against the public interest. Never mind that yesterday's profits were at the lower end of the range of market expectations. Never mind that Shell earns most of its money abroad; or that most of its profits will be invested in order to make the company more efficient, which will sustain prosperity and jobs. Never mind that its dividends will pay pensions and reward savers. It is an oil company, and that is enough to damn it.

Shell is an oil company and therefore, in the popular imagination, it is by definition a wicked conspiracy against the public interest. Never mind that yesterday's profits were at the lower end of the range of market expectations. Never mind that Shell earns most of its money abroad; or that most of its profits will be invested in order to make the company more efficient, which will sustain prosperity and jobs. Never mind that its dividends will pay pensions and reward savers. It is an oil company, and that is enough to damn it.

There is, however, no evidence that the big oil companies are behaving in an anti-competitive way (although they were disgracefully supine during September's fuel protest). Instead, they are the happy beneficiaries of a cartel run by the Organisation of Petroleum Exporting Countries (Opec). And, like any trader in a free market, they seek to maximise profits in times of shortage.

But there is no doubt that a large part of Shell's profits announced yesterday represents a windfall for the company rather than any return on investment or reward for risk. For that reason, it is argued, these profits are asking to be hit by a windfall tax.

The reason why Mr Brown should hesitate before imposing such a tax is that in any free market, firms will often make unexpected profits (or losses) through no initiative or failing of their own. Both Geoffrey Howe's windfall tax on bank profits from high interest rates in the early- 1980s and Mr Brown's own impost on privatised utilities were political gestures. Just as it is no function of the tax system to compensate the consumer for movements in the price of oil on world markets, so it is not the Chancellor's job to decide which profits are "earned" and which are "unearned" windfalls.

The more pressing question for Mr Brown is what to do with the Treasury's own windfall, the £3bn of extra revenue it has collected as a result of this year's rise in oil prices. The temptation must be to collect easy plaudits from the motorist side of the voter's split personality by cutting the duty on petrol and diesel.

This must be resisted. Fuel duty is a good tax, discouraging pollution and congestion. There are many better priorities for tax cuts - or the extra revenue could be well spent on public services, or even debt reduction.

Instead of lashing out at oil companies or the Government, we should look to ourselves. High fuel prices are a wake-up call to all of us as consumers to buy more fuel-efficient cars and to use them less.