Shares of some of the UK’s largest electricity companies fell sharply on Tuesday as Rishi Sunak drew up plans for an extraordinary tax on the energy sector to help offset the spiral of national fuel bills.
The chancellor is quick to complete an emergency energy package to provide relief to households struggling with a spiraling cost of living spiral and the prospect of a £ 800 increase in fuel costs in the future. autumn.
Drax, owner of the UK’s largest power plant, fell 16 per cent, Centrica fell 10 per cent and SSE fell almost 9 per cent in London. The sale came after the Financial Times revealed that Sunak officials were working on a possible extra tax on electricity generators as well as North Sea oil and gas producers.
Electricity generators responded furiously to the possibility that they might be included. They argued that they had not benefited from the increase in electricity prices, saying that the energy they generated was coming from fixed and long-term contracts.
An executive director of a large electricity generator called the proposal “amazing” and said it came out “completely out of nowhere.” He added that it was “completely detrimental to investor confidence” at a time when the government wanted them to support new major renewable projects such as offshore wind.
Government experts said Tuesday night that no decision had been made on whether to extend the extraordinary income tax beyond the oil and gas groups and that the policy “was not direct” but continued. on the table.
Boris Johnson, under intense pressure over the partygate scandal, has been distracted by the imminent release of Sue Gray’s official report on the Downing Street party scandal, which is expected to be released on Wednesday.
Allies say the prime minister is willing to change the subject by quickly introducing the package of measures on Thursday. However, you do not have to sign it yet.
Jonathan Brearley, head of Ofgem’s energy regulator, set the stage for Sunak’s emergency package by telling MPs he expected the maximum price, which limits the amount most British households pay for gas and electricity. ‘electricity, increase by more than 40 per cent to about £. 2,800 a year in October.
Government experts say the extraordinary profits of electricity producers, including wind farm operators, exceed £ 10 billion this year. High gas prices have a side effect for producers of all forms of electricity.
Sunak wants to design the rate to include incentives for companies to increase investment in renewable energy. He had previously opposed an extraordinary tax, arguing that it would affect investment in new energy projects, and conservative right-wingers are scathing about the idea. “Maybe the‘ low tax chancellor ’will cut taxes someday,” one said.
Kwasi Kwarteng, business secretary, when asked by lawmakers if he supported an extraordinary tax on power generators, said: “We are asking generators to deploy record amounts of capital to build the infrastructure we need to achieve the zero net goal.” so I think it’s a challenging proposal. ”
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But allies say Kwarteng gave up on Sunak imposing an extraordinary tax on energy companies, which could raise considerably more money than the £ 2bn rate proposed for oil and gas companies by Labor.
“If he thinks these extraordinary times require extraordinary measures, that’s up to him,” Kwarteng said.
Analysts said a tax on electricity generators would also affect several large foreign-owned energy companies, including ScottishPower, a subsidiary of Spain’s Iberdrola; EDF Energy of France; and RWE of Germany.
The proposed broader tax would also include smaller generators that benefited from an advance subsidy scheme to encourage the construction of low-carbon power generation, which is believed to have benefited considerably from high energy prices. wholesale energy.
Treasury officials are working on an extraordinary tax model for North Sea oil and gas producers similar to the one introduced by Chancellor George Osborne in 2011, according to policy reports.
Osborne increased the “extra charge” charged on oil and gas production and raised £ 2 billion.
Shell CEO Ben van Beurden told the company’s annual shareholders’ meeting that there are “good and bad ways to design a tax structure, and doing so in a bad way can discourage investment.”