Shares in some of Britain’s largest energy companies fell sharply on Tuesday when Rishi Sunak drew up contingency plans for the energy sector to help offset the country’s spiraling fuel bills.
The Chancellor is in a hurry to complete an emergency energy package to offer relief to households struggling with the rising cost of living crisis and the prospect of a £ 800 increase in fuel costs in the autumn.
Drax, owner of the UK’s largest power plant, fell 16 percent, Centrica fell 10 percent and SSE fell nearly 9 percent in London. The sell-off came after the Financial Times revealed that Sunak employees were working on a possible contingency tax on electricity producers as well as oil and gas producers in the North Sea.
The generators reacted furiously to the possibility of them being turned on. They say they have not benefited from rising electricity prices, saying the energy they produced has been sold under fixed, long-term contracts.
A CEO of a large power generator called the proposal “incredible” and said it came as a “complete surprise”. He added that this was “completely detrimental to investor confidence” at a time when the government wanted them to support major new renewable energy projects, such as offshore wind energy.
Government insiders said on Tuesday night that no decision had been made on whether to extend the contingency tax outside the oil and gas groups and the policy was “unclear” but remained on the table.
Boris Johnson, under intense pressure over the partygate scandal, was distracted by the forthcoming release of Sue Gray’s official report on the Downing Street party scandal, which is expected to be released on Wednesday.
According to the allies, the prime minister wants to change the subject by quickly presenting the package on Thursday. However, he has not yet signed it.
Jonathan Brierley, head of energy regulator Ofgem, launched the Sunak emergency package, telling lawmakers he expects the price cap, which limits the amount most British households pay for gas and electricity, to rise by more than 40 rates to around £ 2,800 a year in October.
Insiders in the government say the unexpected profits of electricity producers, including wind farm operators, are over £ 10 billion this year. High gas prices have an impact on producers of all forms of electricity.
Sunak is seeking to design the fee to include incentives for companies to increase investment in renewables. He had previously opposed an unforeseen tax, saying it would hit investment in new energy projects, and the Tories’ right was sarcastic. “Maybe the ‘low-tax chancellor’ will cut taxes one day,” one said.
Kwasi Kwarteng, business secretary, was asked by lawmakers if he supported an unexpected tax on electricity generators. this is a challenging proposal. ”
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However, the Allies say Quarteng is resigning to the fact that Sunak is imposing an unforeseen tax on energy companies, which could raise significantly more money than the £ 2bn bill offered to oil and gas companies by Labor.
“If he thinks these extraordinary times require extraordinary measures, it’s up to him,” Quarteng said.
Analysts said the tax on electricity generators would also affect several large foreign energy companies, including ScottishPower, a subsidiary of Spain’s Iberdrola; the French EDF Energy; and the German RWE.
The proposed broader contingency tax will also include smaller producers who have benefited from an early subsidy scheme to encourage low-carbon energy production, which is believed to have benefited from many high wholesale electricity prices.
Finance officials are working on a contingency model for North Sea oil and gas producers, similar to the one introduced by then-Chancellor George Osborne in 2011, according to those familiar with the policy.
Osborne increased the “surcharge” on oil and gas production and raised £ 2 billion.
Shell CEO Ben van Beurden told the company’s annual shareholders that “there are good and bad ways to design a tax structure and if you do it badly, it can discourage investment.”
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