Windfall tax on oil companies more likely after fruitless talks

Today's oil crisis talks between Gordon Brown and oil barons in Scotland produced little of immediate effect, making it more likely that the Prime Minister will introduce a windfall profits tax on the oil industry.

In an effort to increase oil production - and thus bring down the price - the government announced today that licensing for North Sea oil exploration was to be eased to make previously uneconomic oil wells worth exploiting in the future. Furthermore, Brown will seek to demand that the Opec nations increase oil production - again, in a bid to lower the barrel price - when he attends the G8 summit in Japan in July.

But these are long-range plans and will not affect the price at the pumps today. Brown has not managed to do anything to assuage the anger of the lorry drivers who are threatening to carry out a blockade of refineries within seven days.

Hence the rising speculation among his allies that he will go for a windfall tax on the oil companies, which would enable the Treasury to reduce the Chancellor's duty on petrol and diesel at the pumps in his autumn pre-Budget report. Downing Street is being extremely coy about the issue, but is refusing to rule out the option.

A tax on the huge profits made by the oil companies from the rise of the price of oil to $130 a barrel would instantly reconnect Brown with his own supporters who are desperately keen to see him show the kind of leadership he displayed over the Embryology Bill on stem cell research and abortion law.

It is not easy to write off the windfall tax idea as a 'loony left' plan because it has been endorsed by America's Democratic presidential challenger Barack Obama. He called for the same thing back in April, saying it would be used to ease the burden of rising energy costs on poor and middle-class Americans.

Such a radical step would be an instant hit with Brown's supporters, and could appeal to a wider public. It would also produce clear water - albeit brown rather than blue - between Brown and David Cameron, the Tory leader, who would find it ideologically very difficult to advocate punishing the private sector for excessive profits.

THE MOLE: FUEL PRICES

FIRST POSTED MAY 28, 2008