Reports – Ministers could include electricity generators in windfall tax plans

Westminster could be poised to hit electricity generators with a windfall tax, in addition to North Sea oil and gas firms.

According to reports in the Financial Times (FT), the Chancellor Rishi Sunak has told officials to form plans for a raid on more than £10 billion of profits generated by power companies.

That includes wind farm operators.

One person close to the matter told the FT that “North Sea oil and gas producers are only half the picture”, adding “the other half is that high gas prices have led to some pretty substantial windfall profits for all electricity generation.”

It means the likes of SSE, ScottishPower, EDF Energy and RWE could all face losing some of their takings, increasing revenue for the government.

Ministers are being urged to take rapid measures to ease the cost-of-living crisis, which is partly due to rising energy bills.

Many are calling for a windfall tax on the profits of North Sea companies, though the idea has been opposed by some senior government figures.

Nevertheless education Secretary Nadhim Zahawi has said the Cabinet is considering “all the options” and Mr Sunak is yet to rule out carrying out a one off raid one the takings of energy firms.

© Bloomberg

The FT said that the Chancellor and Boris Johnson “urgently want to set out measures” to tackle rising energy bills, and an announcement could come this week or early next month.

Oil and gas companies have been challenged to reinvest their profits in the UK’s energy system in order to stave off a windfall tax, with Eni, BP and Harbour Energy quickly making large spending pledges.

Labour claims that a proposed windfall tax on the North Sea, something it tabled in parliament, would raise about £2bn.

But government estimates suggest that electricity producers could have made a similar amount in excess profits as a result of higher gas prices, according to the FT.

UK utility firms sank following the news.

SSE fell as much as 11%, the most since the outbreak of Covid-19, while Drax Group tumbled as much as 17% and Centrica dropped as much as 9.3%.

UK operators listed abroad also slid, with E.ON, Electricite de France and Iberdrola all declining.

Citigroup Inc. analyst Jenny Ping downgraded SSE to neutral from buy and Drax to sell from neutral. “The risk around UK windfall tax on the power sector including renewables companies is likely to overshadow the benefit of inflation and commodity prices,” she wrote in a note to clients.