Either we are fighting a war in Europe and should put the economy on a war footing, or we should accept that western government support will falter, dragged back by waning public tolerance.
This message comes from several economists worried that a laissez-faire approach to energy and food prices plays into Putin’s hands.
If prices cannot be fixed in a global market, then two of the biggest consumers – Europe and the US – could at least impose windfall taxes on the main war profiteers and redistribute the money to those households and businesses worst affected, argue Nobel prize winner Joseph Stiglitz and others.
Europe is clearly on the frontline and Shell, the largest oil and gas firm in Europe, highlights in its latest quarterly profits how the entire energy sector’s bottom line is booming.
A profit of more than $9bn (£7.8bn) in the last quarter takes the surplus this year to a record $30bn.
Britain has a windfall tax and yet Shell, despite declaring swimming pools full of extra cash to the government, has not paid a penny.
Rishi Sunak invented the UK version of a windfall tax that applies an extra 25% to the standard North Sea corporation tax rate, but offers a 91% allowance for investment.
Shell says it wants to pay a windfall tax, and has set aside $360m just in case, but critics say the rules are loose and avoidance too easy.
Without loopholes, a windfall tax that is applied across the energy industry could easily fill the estimated £40bn hole in the government’s finances. At the moment, with full use of Sunak’s tax break, it will generate just £5bn.
The prime minister said while in charge at No 11 that he feared energy companies would stop investment and go elsewhere unless he was kind to them.
Much of continental Europe lives with a similar fear. France’s energy company TotalEnergies filed profits over the first nine months of the year of $17.3bn, more than the $16bn it posted for the whole of last year.
As in the UK, these enormous profits have thrown petrol on a raging debate over whether to impose a windfall tax on energy firms to help fund measures to protect consumers from price hikes.
Yet Emmanuel Macron, who has done so much to keep down France’s inflation rate to protect low-income households, reiterated his opposition to such a measure in a primetime television appearance only this week.
The European Union hatched a temporary windfall tax on profits, that is by many measures even weaker than the UK’s, partly due to the French president’s opposition. Yet it has stirred up intense opposition from some oil companies.
Spain’s Repsol said it was considering shifting its investments from Europe to America, where it said there was more regulatory stability. Unsurprisingly, and despite the prospect of an extra tax, Repsol was able to raise its dividend and buy back more shares than previously announced after third-quarter net profit doubled.
Corporate blackmail aside, some analysts argue the war is over, at least as far as the natural gas market is concerned.
European countries have filled their storage facilities and spot prices have tumbled from €200 a megawatt hour (MWh) on 12 September to almost €50 this week.
Ships full of gas can be found queueing outside European ports, pushing prices even lower.
However, the price charged to consumers is based on hedged contracts already in place at much higher prices.
As Craig Lowrey, principal consultant at Cornwall Insight, explained: “The price of gas and electricity being consumed now is reflective of these longer-term hedges entered into by suppliers.”
An energy price cap across the UK of £4,357.65 in January will only fall to £3,610.38 by the end of next year, says Lowrey, meaning the government promise of a six-month subsidy to keep it at £2,500 needs to be extended if it wants to avoid real hardship.
Without greater government intervention to limit the impact of these high prices, the war effort will flag and Putin will be saved.
US return to growth will be short lived
America is growing again. The US reported an annual rate of growth of 2.6% from July to September, ending two straight quarters of economic contraction.
It cannot last. A punishingly high level of inflation and the prospect of even higher interest rates will push the US back into recession next year.
Still, the president can offer voters a sunnier outlook in the midterm elections. He should also be able to keep Putin’s appeasers in the Republican party from cutting off vital arms to Ukraine, even if he cannot quite persuade them to back windfall taxes on profiteering energy producers.
