Shell here is only giving us a little guide to a basic truth about this universe that we inhabit:
Shell is reviewing plans to invest £25bn in Britain’s energy system after Jeremy Hunt raided the industry for £55bn in windfall taxes.
David Bunch, Shell’s UK chairman, said the expanded levy announced in the Chancellor’s Autumn Statement is forcing the company to re-examine a slew of projects in the pipeline, from North Sea investments to renewable energy schemes.
Mr Bunch told The Telegraph this meant Shell “cannot take it for granted” that the full investment plan will still go ahead.
The people who run corporate spreadsheets are not, contrary to popular belief, fools. They know that, as with death, taxes are one of those sure things. So, it is the post-tax return to capital investment which is used to determine whether a project goes ahead. Raise the taxation and some of those projects will not hit the necessary return on the investment - they’ll not happen.
Yes, sure, we grasp that fairness argument. Those who earn their money from investing, why should they pay a lower tax rate than those who rent out their labour? The correct answer being, well, we do think that investment is a pretty good idea. It’s what makes the future richer after all. So, we want a tax rate on investment which optimises investment in that making the future richer. Which might well be entirely different from the tax rate which is optimal for labour income.
We would say that the optimal taxation rate on investment income is nothing in this sense - despite noting that it’ll not pass that equity and fairness test (also known as “people won’t put up with it”). In that efficiency sense the best tax system is probably one of no corporate taxation at all (resource rents are another matter of course) and all investment returns ditto. A progressive consumption tax instead - no, that’s not a VAT, instead money added to an investment pot, money made in an investment pot, is tax free, money consumed whether from labour or investment returns is taxed.
But leave aside such details for a moment. Think about this larger issue. Raising the tax rate on the returns to investment reduces the amount of investment that is done. Shell here just being today’s little guide to that basic truth.
So, what we’ve got is the massed progressives of the world screaming that trillions upon trillions must be invested to deal with climate change. At the same time as they’re insisting that investment returns must be more heavily taxed so that there’s less investment. Someone is confused here and it’s not us.