How are energy companies in the UK going bust but also having colossal profits?

Question

Last 2021 and early 2022, a large number of energy companies in the UK went bust.

Now all that is on the news is how the UK Government are going to impose a windfall tax on energy companies because their profits are soaring.

How do these two things happen at the same time?

In: 23

Answer 1

Politics mostly. For good reason, companies are allowed to carry forward their losses from bad years to offset gains in good years and pay significantly less in tax in good years doing so. Politicians love to point to the less contextualized comparison of profit to tax RIGHT NOW as a way to deflect blame away from themselves and their policies during periods of high energy prices.