windfall tax

One-off levy, introduced in 1997 by the UK Labour government, on the excess profits earned by 33 UK utilities privatized by public flotation since 1983, and regulated by statute. The tax was designed to raise, in two equal instalments (in December 1997 and December 1998) £5.2 billion, to be used to fund the Welfare-to-Work programme, helping the young and long-term unemployed back into work.

The justification provided for the tax was that investors in the privatized utilities had secured excess profits, as shares had been underpriced when originally issued and subsequent regulation of the companies had been lax. The utilities affected by the levy included the regional water and electricity companies, the power-generators, British Gas (and its successors), British Telecommunications, Railtrack, and the British Airports Authority. It was not imposed on enterprises privatized through management buy-outs or third-party sales, such as the National Freight Company and rolling stock leasing companies (although investors made substantial profits in such cases), or on privatized bodies such as British Airways operating in competitive markets. The Conservatives criticized the tax for being retrospective and affecting the current shareholders ‘unlucky enough to be holding the parcel when the music stops’, rather than the early investors who had secured the windfall profits.