Chancellor Rishi Sunak has ordered officials to draw up plans for a possible contingency tax on more than £ 10 billion in surplus profits from electricity producers, including wind farm operators, in addition to the attack on North Sea oil and gas producers.
Treasury officials are working on a scheme that will go beyond the original contingency plan for Labor, as Sunak seeks to raise billions of pounds in financial support for households struggling with rising energy bills.
“Oil and gas producers in the North Sea are only half the picture,” said a government insider. “The other half is that high gas prices have led to some very significant unforeseen profits for the entire electricity industry.
By attracting large power generators such as SSE, ScottishPower, EDF Energy and RWE to the scope of any contingency tax, Sunak will dramatically increase the revenue it brings.
Sunak and Boris Johnson want to urgently determine measures to deal with rising energy bills and how to pay them, officials say. An announcement may come this week or after the anniversary celebration in early June.
The chancellor had previously opposed an unforeseen tax, but said this month it was “pragmatic” and that if oil and gas producers do not increase their investment commitments quickly, then “no option is on the table”.
Rising gas prices have an impact on the electricity market and lead to higher wholesale prices throughout the sector, including for some renewable and nuclear producers.
Labor claims that its contingency tax, which will apply only to North Sea oil and gas producers, will raise around £ 2 billion. An analysis by Greenpeace UK claims that they will make an unforeseen profit of £ 11.6 billion this year.
Government estimates suggest that electricity producers could make a similar amount in excess profits – more than £ 10 billion – as a result of higher gas prices.
One energy expert said the idea of overprofits for producers was “a very simple part of the economy”, saying it was more accurate to talk about “the difference between their costs and the price determined by gas”.
Deepa Venkateswaran, an analyst at Bernstein, said the contingency tax on power generators would be a “dumb tool” as many power generators sell their products in advance, limiting how much they have benefited from recent high prices.
She also noted that many large energy companies are investing heavily in technologies such as offshore wind to help Britain meet its net zero emissions target for 2050. The government will need to be careful, she added. said that “any retrospective or knee measures. . . it will have the opposite effect. “
The Spanish government announced a “surplus” fee for Spanish power companies last year, but then cut it in October after warnings that it would hurt investment in wind farms.
Downing Street and the Treasury Department said no decision had been made to impose an unforeseen tax. “We will only do this if we decide that this is the only way to fund something that we think needs to be done,” said one of Boris Johnson’s allies.
Tory rightists oppose the contingency tax, but Sunak is reluctant to fund a bailout package for households struggling with higher bills through large-scale additional loans, fearing it could fuel inflation.
Sunak officials are working on a contingency model for North Sea oil and gas producers, similar to the one introduced by George Osborne in 2011, according to those familiar with the policy.
Osborne increased the “extra tax” on oil and gas production and raised £ 2 billion. The surcharge fell to its original level only when the price of oil returned to the starting price of $ 75 per barrel.
According to Sunak’s plan, oil and gas producers could continue to pay higher taxes for several years if wholesale prices remain high.
A Finance Ministry spokesman said the government had already provided a £ 22 billion support package and that while it could not protect everyone, “we understand that people are struggling with rising prices”.
Owners of gas-fired power plants have passed on their higher production costs to customers through inflated prices.
Long-term owners of low-carbon schemes, such as onshore wind farms or solar energy, are more likely to benefit from subsidies in addition to wholesale prices under the “renewables certificates” scheme.
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