Atax system​ is a political philosophy expressed in numbers. Although the introduction of a tax can seem to be just a matter of brute politics, public acceptance of a new imposition is affected by the extent to which a justification can be provided. Elements of economic theory usually figure in the argument, but there are also widely held, albeit conflicting, moral intuitions to appeal to, intuitions in which ideas of fairness and desert play some role.

The most basic justification for taxes is the quasi-Hobbesian one succinctly expressed in the early 19th century by Richard Whately, an archbishop who moonlighted as a philosopher and political economist, when he defined taxation as ‘the revenue levied from the subject in return for the protection afforded by the Sovereign’. On this understanding, taxation is a kind of protection racket: pay up and we’ll look after you. This is, essentially, the argument of the Taxpayers’ Alliance when it campaigns for a low-tax society: my money is emphatically ‘mine’, and I’m prepared to let the government ‘take’ a portion only if in return it provides security and other services from which I benefit. But the basis of our existing tax system can’t quite be as simple as that, even if, for the moment, we leave aside the question of how the money came to be ‘mine’ in the first place. For one thing, around four out of ten adults in this country don’t pay any income tax, yet they still benefit from the same protections. For another, we are subject to an array of taxes that do not obey a single logic: VAT is based on expenditure not income; inheritance tax falls on the estate of the person who has died, not on the beneficiaries; taxes on alcohol and tobacco single out some activities rather than others as undesirable (to be discouraged but not banned); and so on.

Different types of justification are required for different taxes. Consider capital gains tax. If I buy an asset at the market rate one year and sell it at a higher price several years later, the state ‘takes’ a percentage of the difference between the two sums. The implicit argument is that the profit is not due to my skill or exertion but simply to the social forces that drove up the price (housing is these days the most familiar example of this, though, in a twist to the tale, any such profit is exempt from capital gains tax if the property is a principal residence, bringing in a different type of argument altogether). The best case for a capital gains tax is that it recovers for society part of the wealth that has been created by society, though there might then be a question of why only a part of the gain is recovered. There’s also the idea that it would be unfair to allow income from the sale of assets to be treated more leniently than income from work, though, in a further twist to the tale, such capital gains are in fact currently taxed more leniently than ‘earned’ income. With taxation, as with other matters, the passage of time is the creator of legitimacy. The gross imperfections of long-established taxes come to be tolerated while the lesser failings of a new tax are seized on. As a result, any existing tax system is like a museum of measures that have yielded revenue without provoking rebellion.

Taxes serve their function only if people actually pay them, and compliance depends not just on fear of the consequences of non-payment but on the at least implicit recognition of a tax’s legitimacy – as over-reaching monarchs discovered long ago. The poll tax riots in 1990 offer the most recent example of a lack of such recognition, leading to the downfall of the over-reacher-in-chief. But here’s where the question of persuasive justification gets interesting. The holy grail of fiscal policy is a form of revenue that is readily acceptable to most of the population (ideally because it is not levied on them but on other people) and that can be tapped without, as the economists say, stunting any productive capacity – in other words, a tax that can be levied without the risk of diminishing the effort or investment involved in the economic activity targeted. If part of the yield of that activity can be shown to have been an unexpected bonus, the state can hope to appropriate some or all of it without risking either damage to the economy or a backlash from voters.

The Energy Profits Levy announced by Rishi Sunak when he was chancellor of the Exchequer in the far-off days of May 2022 seemed to meet this requirement – which is why it’s described as a ‘windfall tax’. What this label implies is that chance circumstances, not the efforts or foresight of the beneficiaries, have resulted in a huge financial gain that can be taxed without any risk of damaging the commitment or investment needed to sustain economic activity. It’s portrayed as a painless tax because the firms involved still get their usual profits (or higher than usual), allowing the state to cream off the ‘surplus’. The popular associations of the term ‘windfall’, suggesting fruit on the ground that’s common property (as opposed to fruit still on the tree, the picking of which would be theft), contribute to the perceived legitimacy of this exceptional act of fiscal confiscation.

The more the reasoning in such a case is examined, however, the more it raises questions about the principles of taxation in general and, indeed, Britain’s whole political economy. The legitimacy of the Energy Profits Levy, as with the levy on ‘excess profits’ from North Sea oil in the 1980s, seems partly dependent on the sheer size of the ‘windfall’ and partly on the direct link to consumers’ bills. Putin’s invasion of Ukraine may indirectly have boosted the profits of firms in various sectors of the economy, but that is implicitly regarded as an example of the ‘normal’ ways in which world events affect commercial activity. Although all costs are, ultimately, borne by the consumer, such effects are masked or partial in their impact in most cases, whereas with energy it’s clear that consumers are directly contributing to the companies’ bumper profits, adding further legitimacy to the attempt to recover some of the exceptional increase for public use.

But there’s an obvious arbitrariness involved in regarding some instances of such profits as a ‘windfall’ and others as not. After all, a considerable part of the profits of any commercial activity is generated by forces that are not foreseeable by, still less under the control of, those who reap the benefits. Two shopkeepers selling identical goods with identical zeal may reap very different rewards if, say, one shop finds that a large employer has sited its new headquarters nearby while the other is hit by a decision to close a local factory. Two individuals advertising identical Land Rovers on the internet in different weeks may sell at significantly different prices if it happens that a group safari setting out in one of those weeks suddenly finds itself a Land Rover short. All such extra profits are in a sense ‘windfalls’, raising questions about how we might identify normal or acceptable profits.

Sunak’s Energy Profits Levy differs from previous windfall taxes in one crucial respect. In the past, such taxes were retrospective: they were a one-off, levied on profits that had already accrued. Sunak’s levy, by contrast, is prospective, applying an additional rate of tax of 25 per cent to profits made from the date of the announcement (and subsequently increased), which makes it more like a regular corporation tax. Introducing the levy, the government said it would be phased out ‘if oil and gas prices return to historically more normal levels’ (the legislation also included a ‘sunset clause’, meaning the levy will lapse at the end of December 2025). But what is this notion of ‘historically more normal’ prices? Do we usually think of prices reverting to some earlier level? And anyway why was the price (of this or any other commodity) assumed to be at some ‘right’ level on one date and a ‘wrong’ level on another? It’s hard to believe that Tory ministers are zealous advocates of a return to the medieval notion of a ‘just price’, but the underlying reasoning looks decidedly fishy, and not just because it concerns the North Sea.

This is where things start to unravel. Taking any earlier price of a commodity as a benchmark will merely reflect market conditions at a particular moment. Market conditions always reflect, among other things, imbalances of economic power; to give any particular historical price a normative status endorses those imbalances. Any attempt to go further and determine a ‘reasonable’ level of return for a particular activity is in effect either to pluck an arbitrary figure out of the air or to fall back on the current (or recent) ‘market rate’. This was evident with the Labour government’s ‘windfall’ tax on the privatised utilities in 1997. Labour argued that the previous Conservative government had sold off the state-owned utility companies at too low a price, allowing the newly private companies to make ‘excess profits’ at the expense of the taxpayer and customers. The new tax was calculated as 23 per cent of the difference between a notional valuation of the companies based on their profits over the four years after privatisation and the price actually decided on for their sale by the Tory government. What was particularly intriguing about this episode was that Labour were implicitly endorsing the ‘market price’ (the price at which the companies would have been valued by the market) against what might be seen as the ‘political price’, the price the Tories thought was expedient to make the privatisations a popular success. In reality, the sell-offs had been a gigantic scam, transforming publicly owned resources into vast unearned private gains, but in theoretical terms there was the irony of seeing a progressive party rely on a version of market forces to determine the ‘just price’.

Those who support retrospective windfall taxes argue that, the relevant profits having already accrued, such taxes can exert no distorting power over future behaviour – though companies who come to fear that such levies may be imposed will likely adapt their accounting procedures accordingly. (In the case of Sunak’s levy, the enormously generous exemption for the expenses of new investment may allow the oil and gas companies to effectively shelter a large proportion of their profits anyway.) A prospective tax has to pass a test that it will not damage or strangle economic activity to such an extent that it will do more harm than good and, ultimately, result in reduced tax revenue. Deciding on a rate of taxation that passes this test is not an exact science. The level of taxation individuals and organisations are willing to endure while still pursuing their usual occupations with their usual diligence is variable, both historically and culturally. In addition, popular support for such measures reflects, among other things, prevailing beliefs about the legitimacy of certain forms of profit or income – beliefs that have left their mark on the language. At a time when income from ownership of land underwrote the social order, a stigma attached to ‘rack-renting’, defined as ‘to raise rent above a fair or normal amount’. In times of war or other emergencies, the ‘profiteer’ is soon identified, defined as ‘one who makes excessive profits esp. illegally or in black-market conditions’.

Thehistory of taxation is a rich field for studying such changing and inchoate, but deep-seated, normative assumptions. From the beginnings of a bureaucratic ‘fiscal state’ in Britain in the late 17th and 18th centuries, customs and excise were the chief sources of public revenue. From time to time, clumsy attempts were made to tax wealth using some easily identifiable metric, as in the window tax or hearth tax or the tax on the number of male servants: each eventually succumbed to criticism and opposition. What helped to at least partly legitimate customs and excise duties was the fact that, unlike in France, there were no special exemptions for a particular class or social category. As a result, the historian John Brewer has noted, although ‘there were occasional attacks on revenue officers, these were usually carried out by professional smugglers rather than by outraged taxpayers.’ But grumbling acquiescence (the most any fiscal system can usually expect) to customs and excise went along with fierce hostility to any form of direct taxation. When the younger Pitt first introduced a form of income tax in 1799 as an emergency measure to help pay for the war with revolutionary France, it certainly did not meet with universal acceptance. ‘The income tax,’ thundered the radical MP Francis Burdett,

has created an inquisitorial power of the most partial, offensive and cruel nature. The whole transactions of a life may be inquired into, family affairs laid open, and an Englishman, like a culprit, summoned to attend commissioners, compelled to wait like a lacquey in their anti-chamber [sic] from day to day until they are ready to institute their inquisition into his property; put to his oath, after all perhaps disbelieved, surcharged and stigmatised as perjured, without any redress from or appeal to a jury of his country … Sir, the repeal of this tax is not a sufficient remedy for its infamy; its principle must be stigmatised and branded.

Despite such denunciations, the state’s need for revenue during the Napoleonic Wars kept the tax in place; it was abolished only after victory at Waterloo. Burdett’s sentiments, rephrased in the idiom of our time, still find a thin echo in the propaganda of the raving right, though majority opinion no longer takes its stand on these antique grounds.

Income tax was reintroduced in the early 1840s by the Tory prime minister Robert Peel, who argued that a modest levy would actually help protect property from more severe despoliation in difficult times. Once the danger was past, it could be repealed, as Peel proposed to do after three years. Of course, all times can feel like difficult times and the tax was not repealed. Ultimately it was the Liberal chancellor (and subsequently prime minister) Gladstone, more than any other individual, who secured the position of income tax as a fundamental and accepted part of the public revenue, though he insisted that it must remain a flat-rate tax. Graduation, he argued, was

generally destructive in its operation to the whole principle of property, to the principle of accumulation, and through that principle, to industry itself, and therefore to the interests of both poor and rich … It means merely universal war, a universal scramble among all classes, everyone endeavouring to relieve himself at the expense of his neighbour, and an end being put to all social peace, and to any common principle on which the burdens of the State can be adjusted.

Again, it would be hard to find any resistance today to the principle of graduation except among the more extreme elements of the right, where flat-raters bear a more than passing resemblance to flat-earthers. Gladstone may have believed that a graduated income tax was corrosive of accepted notions of private property, but before long the argument went a different way: the feeling grew that a flat tax was so out of kilter with people’s ideas of fairness that not to introduce some form of graduation would undermine the legitimacy of the system. As these historical examples suggest, at each step along the way various forms and levels of taxation are strongly resisted, only for the passage of time to render them part of the accepted architecture of a state’s relations with its citizens.

In​ the 19th century, orthodox political economists struggled to provide a theoretical account of taxes that went beyond the quasi-Hobbesian compact. But alongside the mainstream arguments about the basis of taxation ran a more heterodox tradition that attempted to identify some forms of income as generated by exceptional circumstances, radical economists elaborating the idea of a ‘surplus’ or, more frequently, of ‘rent’. The latter idea, first generalised out of the treatment of land in classical political economy, attempted to identify returns that arise from control over scarce or monopolised assets. John Stuart Mill stated the underlying principle in 1848:

Suppose that there is a kind of income which constantly tends to increase, without any exertion or sacrifice on the part of the owners: those owners constituting a class in the community, whom the natural course of things progressively enriches, consistently with complete passiveness on their own part. In such a case it would be no violation of the principles on which private property is grounded, if the state should appropriate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from any body; it would merely be applying an accession of wealth, created by circumstances, to the benefit of society, instead of allowing it to become an unearned appendage to the riches of a particular class. Now this is actually the case with rent.

Some of the ambiguities of this passage were to resonate in radical thinking for decades. What exactly does ‘created by circumstances’ mean? Isn’t all wealth partly due to ‘circumstances’? And if the increase in wealth is unmerited, why only take ‘part of it’, and how could one decide how much to take? The introduction of ‘unearned’, a powerful stigmatising term, was to be consequential both for popular rhetoric and for subsequent forms of taxation that distinguished between ‘earned’ and ‘unearned’ income. In discussing the costs of production, Mill had already observed that ‘all advantages, in fact, which one competitor has over another, whether natural or acquired, whether personal or the result of social arrangements … assimilate the possessor of the advantage to a receiver of rent.’ But he did not go on to generalise this argument as a basis for taxation.

Several economists and social critics after Mill attempted to extend this analysis. The American reformer Henry George famously proposed a tax on land values as a panacea for social ills, arguing that all increases in the price of this natural monopoly were forms of ‘unearned increments’. In the later 19th century, the Fabians, Sidney Webb to the fore, extended the notion of ‘rent’ to other factors of production, principally capital and ‘ability’. Webb explicitly included ‘windfall’ profits and ‘temporary monopolies’ in this category, justifying the community’s appropriation of ‘excess’ profits. But it was the New Liberal theorists of the 1890s and 1900s, notably J.A. Hobson and L.T. Hobhouse, who developed the most powerful political versions of this idea. If it could be argued that certain levels of profit or income were greater than the amounts needed to bring the underlying factors into production (i.e. that the same investment or the same exertion would have been forthcoming at a lower level of return), then, so the claim went, the community could appropriate the ‘surplus’ without stunting any productive capacity, thus bypassing one of the strongest of the traditional objections to increasing taxation. Hobhouse expressed this case in its most general form in 1911:

The true function of taxation is to secure to society the element in wealth that is of social origin, or, more broadly, all that does not owe its origin to the efforts of living individuals … A tax which enables the State to secure a certain share of social value is not something deducted from that which the taxpayer has an unlimited right to call his own, but rather a repayment of something which was all along due to society.

Hobhouse’s second sentence provides a compelling statement of a sociological truth about the social origins of all wealth, but his larger argument rests on the assumption that a line can be drawn distinguishing the element of wealth which owes its existence to the efforts and ability of the individual from the element which owes its origin to society. In reality, as the New Liberal theorists had eventually to concede, there was no principled way to determine where this line should be drawn, and so it was necessary to fall back on the rough and ready assumption that high incomes included a greater proportion of socially generated wealth than low incomes. That may have made their case politically palatable (except to those with high incomes), but it was arbitrary from a theoretical perspective, in much the same way as Sunak’s identification of 25 per cent as the proportion of future North Sea oil and gas profits that should be regarded as excessive or abnormal. In both cases, political expediency trumped theoretical rigour.

Nonetheless, the New Liberal years did see two decisive steps towards a mildly redistributive fiscal system. In 1907 the Liberal chancellor, Asquith, introduced the first form of differentiated income tax, with higher rates for income that was ‘unearned’, such as rents from land, than for income that was ‘earned’, such as salaries and wages. Then in 1909 his successor, Lloyd George, further broke the mould by introducing the principle of graduation into income tax: incomes up to £2000 paid at 9d; between £2000 and £3000 at 1s; over £3000 at 1s 2d; with a ‘super tax’ of an additional 6d in the pound for annual incomes over £5000 (the equivalent of between £600,000 and £700,000 today). The dogma of the flat rate was bypassed, allowing both thresholds and tax rates to become matters of political expediency, as dramatic rises to fund the nation’s expenditure in the First World War quickly showed. The war also led to the introduction of a special tax on ‘excess profits’ earned through the production of war goods, which again appealed to some intuitive notion of the ‘proper’ rate of profit in such extreme circumstances.

All these examples point to a vague but powerful notion of there being elements of our income or wealth which are not purely ‘ours’, but rightly belong to the community. If, following this line of reflection, we ask what a properly radical system of taxation would look like in present circumstances, one conclusion might be that we need a much more cogently articulated idea of our inter-relatedness. The key premise in the passage quoted from Hobhouse is that of ‘repayment’. The element of income or wealth in question was never properly ‘ours’ in the first place: the individualistic form of accounting that assigns such sums to identifiable persons is merely a convenient fiction. This is most obvious in cases of very large or suddenly acquired income. The fact that a hedge-fund manager can use the firm’s capital to make a huge bet against the movement of a particular currency does not, according to any usual moral reasoning, mean that that individual has ‘earned’ a bonus of several millions when the bet comes off. Similarly, no one can really believe that a tiny handful of very fit young men who are good at kicking a ball around on Saturday afternoons would simply hang up their boots unless they were, largely as a result of deals made between TV companies in far-off countries, paid at least £200,000 a week. In these instances and others like them, the case for ‘repayment’ is overwhelmingly strong. It would be, in effect, to extend the principle of the windfall tax to individuals.

The combined forces of globalisation and financialisation, which have so fundamentally reshaped the world in recent decades, have created patterns of rewards that can be understood only in terms of, to stretch the earlier vocabulary, a ‘rent of capital’. This is different from the long-established contention that, since economic activity requires investment, investors are entitled to sufficient return to provide them with an incentive to risk their capital. By contrast, what characterises the present are the huge rewards given to those who manage capital rather than own it. A middle-ranking fund manager in the City isn’t paid a hundred times more than the bursar of a local charity because their skills or judgment are a hundred times greater, still less because their activities have a higher social value, but simply because the bets are bigger. Vast concentrations of capital can bully the world into yielding high returns from which those who simply play bit parts in the process or otherwise hang around in the slipstream can be granted ‘abnormal’ incomes.

There are, of course, strong countervailing moral intuitions in play in this area as well. It’s sometimes argued that a talented individual only gets to a point where significant rewards accrue because of years of effort and sacrifice that were under-rewarded at the time. A top barrister, for example, might claim that you are not paying £1000 for an hour of their time; you are paying it to share some of the benefits of their thirty years of education and experience. That argument, however, doesn’t cut it in the case of the currency trader in his (nearly always his) twenties who becomes a multi-millionaire because some of his firm’s bets have come off.

But our notions of fairness are a terrible tangle of incompatible ideas. Even if we grant that some vastly remunerated individuals are displaying exceptional talent, it might still seem that the old Fabian idea of a ‘rent of ability’ provides a plausible justification for reclaiming part of the wealth that accrues to such individuals. Why, after all, is it fair that an individual who happens to have so-called ‘brains’, or indeed a beautiful face or an unusually powerful heart and lungs, should get hugely greater rewards than an individual not so endowed? Yet many people regard such returns as part of the natural order. Indeed, it may be that many people are entirely happy for luck to play a part in differential rewards being assigned to otherwise equally meritorious individuals, as in the curious fact that the most obvious forms of individual windfalls – winning an enormous prize in the lottery or from Premium Bonds or some other form of raffle – are entirely exempt from tax.

For all the theoretical lacunae in the attempts to generalise the category of ‘rent’, they did at least highlight the truth that all market relations are shaped by inequalities of economic power. Monopoly or effective control of scarce resources, especially of such fundamental factors as land, water or energy, provide the most egregious instances of this general truth, allowing a political case for recovery of the socially created elements to gain legitimacy. But those who fear (or rejoice) that this is the thin end of a potentially big wedge are not wrong. Once you admit the category of ‘windfall’ to the fiscal system, then all large profits or incomes become vulnerable to the same analysis and therefore targets for society to reclaim the surplus.

Incometax tends to be a lightning conductor for political resentment, but most people are principally affected by the more insidious indirect taxes. In Britain at the beginning of the 20th century income tax was levied only on incomes above £150 a year, which meant the great majority were exempt – one estimate is that it was paid by less than 3 per cent of the population. Even now, some 42 per cent of the adult population do not pay income tax, and, according to calculations by Paul Johnson of the Institute for Fiscal Studies, ‘90 per cent of income tax is paid by just a third of the population.’ But even that figure hides the staggering inequality that any just fiscal system would need to address, where the focus needs to be not on the top 30 per cent or even the top 10 per cent but on the top 1 per cent and still more on the top 0.1 per cent. Johnson estimates that ‘the richest 1 per cent of households probably own about a quarter of all the wealth’ in the UK, and that ‘the concentration of wealth at the top has been growing in recent years.’

It’s hard to comprehend how such a scandalous situation has been allowed to develop, but, in the absence of any policy for the systematic socialisation of capital, the implicit logic of a ‘windfall tax’ can bite even here. A report from 2020 on the idea of a one-off ‘wealth tax’ concluded that, levied at a rate of 5 per cent on assets over £2 million in value (payable at 1 per cent per year over five years), it would raise £80 billion. It may be that the value of a principal residence would have to be exempt, which would reduce the take somewhat, and some would argue that pension pots, too, should be exempt, though it’s only because our current fiscal treatment of large pension assets is so ridiculously generous that this exemption could seem plausible. A properly graduated income tax would go some way to preventing fortuitously placed individuals creaming off more than their share of the social product in the first place, but only some form of wealth tax would have any chance of reducing the vast concentrations of already accumulated capital. Ed Miliband’s ill-fated ‘mansion tax’ proposal was animated by similar impulses but was poorly targeted: not everyone who lives in what has become an expensive house disposes of large amounts of additional capital, just as most of the wealth of the really rich is not tied up in their principal residence. A wealth tax would obviously have to address some much touted practical obstacles: it wouldn’t be easy to secure the level of international cooperation necessary to stop the flagrant misuse of offshore tax havens, and there is the old bogey of ‘capital flight’, which is regularly summoned up to put the frighteners on all radical fiscal proposals. But there are encouraging signs that the majority of countries are coming to recognise that some form of coordinated regulation of large capital assets is in their interests, while the fear that all the ultra-rich will simply decamp seems implausible given the complexity and rootedness of most lives – and anyway, the exit of a few of these individuals might be welcomed as a positive social gain.

Labour under Keir Starmer is playing its cards close to its chest, but at some point will have to show its hand. Given the accumulated problems that an incoming Labour government will face, only a radical tax policy will give it the headroom for better funded public services while at the same time making a dent in the huge inequalities of wealth that disfigure British society. Taxation is sometimes scanted as a superficial form of social-democratic tinkering that leaves the underlying structure of economic power untouched, but well-designed taxes can be enormously potent weapons for redistributing wealth, as was notably the case in the UK after 1945. What’s more, raising some taxes is not always political suicide. As my earlier examples suggest, notions of what is legitimate in this area are historically variable, and the introduction of a new policy can be one driver of such variation. Precisely because our received moral intuitions embody such a tangle of conflicting principles, particular elements in those assumptions can be drawn on to legitimate fiscal innovations even when other assumptions may appear to license resistance.

At present, capital largely rules the world and capital has helped shape a fiscal system that strongly favours its activities. The chief ally of governments in maintaining their various tax regimes is public ignorance and inattention. If enough people focused on, say, the consequences of taxing incomes at a higher rate than capital gains, or on allowing ‘partners’ in law and accounting firms to have what is in effect salary reclassified as fiscally advantageous ‘business profits’, then these and other abuses might soon be brought to an end. Similarly, it would be the positive end of a potentially huge wedge if enough people accepted that reclaiming a proportion of ‘excess’ profits was something that could be done whenever it seemed expedient. The imposition of a windfall tax may be seen as an exercise in fiscal populism or a confession of intellectual bankruptcy, but it’s also an implicit affirmation that society has a right to reclaim at least a share of the wealth it has helped to create. It would be a pleasing conceit to portray the flagrant confiscatory socialism of the Energy Profits Levy as a Trojan horse, but I fear that the conceptual scandal lurking in the very idea of such a tax will once again be hushed up, and capital will continue on its merry extractive way, making only minor concessions to any effective regime of fiscal justice.

Send Letters To:

The Editor
London Review of Books,
28 Little Russell Street
London, WC1A 2HN

Please include name, address, and a telephone number.


Vol. 45 No. 22 · 16 November 2023

A couple of considerations might be added to Stefan Collini’s excellent treatise on taxation (LRB, 19 October). The first is what the Treasury calls ‘economic regulation’: the regulation of the natural monopolies whose privatisation and subsequent revaluation Collini discusses. Unlike the regulators of natural markets, who only have to set rules to prevent harm, the regulators of natural monopolies have to ‘create’ the markets, setting rules and prices to ensure competition, innovation and so on. A windfall tax on privatised utilities isn’t always about profits that have arisen as a result of world events or societal progress; it is often used as a clumsy device to correct for abject failures in these fake markets. An energy market where generators and distributors make vast profits while retailers operating on tiny margins struggle to stay in business needs fundamental redesign, not windfall taxes. A water market in which companies borrow huge sums to fund high-yield derivatives and then come cap in hand to the regulator saying they need to raise prices in order to fix crumbling infrastructure while repaying their debts is broken in a different way.

The second consideration is whether, once living standards have increased to the point where we no longer have to compete with our neighbours for essential resources, there isn’t some general obligation for those who have more to help those who have less. Does the state have a role to play in ensuring that help reaches the poor, or should that be the responsibility of individuals and charities?

Chris Carr
Beckenham, Greater London

send letters to

The Editor
London Review of Books
28 Little Russell Street
London, WC1A 2HN

Please include name, address and a telephone number

Read anywhere with the London Review of Books app, available now from the App Store for Apple devices, Google Play for Android devices and Amazon for your Kindle Fire.

Sign up to our newsletter

For highlights from the latest issue, our archive and the blog, as well as news, events and exclusive promotions.

Newsletter Preferences