Rishi Sunak is reportedly considering imposing a wider windfall tax on electricity generators, as well as on oil and gas producers, that could bring in billions of pounds to help households struggling with soaring food and energy costs.
The chancellor has instructed Treasury officials to work on plans for a potential tax on more than £10bn of excess profits made by electricity generators, including windfarm operators, according to sources cited by the Financial Times.
That would go far beyond Labour’s plan for a one-off levy applied only to North Sea oil and gas producers, which would raise an estimated £2bn. Profits on these firms are taxed at 30% corporation tax plus a 10% surcharge, but Labour has proposed raising the combined rate from 40% to 50%.
Oil and gas producers have benefited from rocketing global energy prices amid Russia’s war in Ukraine. Higher gas prices have pushed up wholesale prices across the electricity market, including for some producers of renewable and nuclear power.
Government estimates suggest electricity producers could have made more than £10bn in excess profits as a result of higher gas prices, the FT reported.
The chancellor appears to have shifted his position after initially opposing a windfall tax. He said earlier this month that he was “pragmatic,” saying “no options are off the table” if oil and gas companies did not raise investment in the UK economy.
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However, the Investec analyst Martin Young was sceptical about the idea. He said: “A windfall tax on generation could possibly jeopardise much-needed investment, and could see higher returns demanded [by electricity generators].”
He noted that there were huge investment needs in electricity generation such as in offshore wind, nuclear and hydrogen storage.
“Longer term, neither would be good for the consumer or the net zero pathway. Cost of energy crisis? Yes. Insufficient action so far by government? Yes. A windfall tax on generators the right answer? No. Be careful what you wish for. The spectre of intervention, however, could weigh on the generators.”