Rishi Sunak is reportedly considering imposing a wider contingency tax on electricity producers as well as oil and gas producers, which could bring in billions of pounds to help households struggling with rising food costs and energy.
The chancellor has instructed Treasury officials to work on plans for a potential tax on more than £ 10bn in surplus profits from electricity producers, including wind farm operators, according to sources quoted by the Financial Times.
That would go beyond Labor’s plan for a one-off fee applicable only to North Sea oil and gas producers, which would cost approximately £ 2 billion. Profits from these companies are subject to 30% corporate tax plus a 10% surcharge, but Labor has proposed raising the combined rate from 40% to 50%.
Oil and gas producers have benefited from rising world energy prices amid the Russian war in Ukraine. Higher gas prices have raised wholesale prices in the electricity market, including for some renewable and nuclear power producers.
Government estimates suggest that electricity producers could make more than £ 10 billion in surplus profits as a result of higher gas prices, the FT reported.
The chancellor seems to have changed his position after initially opposing an unforeseen tax. Earlier this month, he said he was “pragmatic”, saying “there are no options that are not on the table” if oil and gas companies do not increase investment in the UK economy.
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However, Investec analyst Martin Young was skeptical. He said: “An unforeseen generation tax could jeopardize much-needed investment and could lead to higher returns required. [by electricity generators]”
He noted that there is a huge need for investment in electricity generation, such as offshore wind, nuclear and hydrogen storage.
“In the long run, neither would be good for the consumer or the net zero path. The cost of the energy crisis? Yes. Insufficient action so far by the government? Yes. Contingency tax on generators the right answer? No. Be careful what you wish for. However, the specter of interference can weigh on generators. “
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