Finance

UK Chancellor Plans To Levy Windfall Tax If Energy Firms Fail To Reinvest “Enormous Profits”; Report

UK Chancellor Plans To Levy Windfall Tax If Energy Firms Fail To Reinvest “Enormous Profits”; Report

Update (0820ET): UK Chancellor Rishi Sunak has asked officials to look at a windfall tax on electricity generators, as well as oil and gas companies, according to reports.

RBC Europe analyst John Musk wrote in a note that a windfall tax on British utilities is “very short-sighted” and could risk billions of pounds of future investment in the UK.

Such a levy could cost the country £100 billion ($125 billion) by 2030 if it discourages investors, adding that a large element of the government’s Energy Security Strategy would be “at risk” if the plans went ahead because of lower confidence in future investments.

Ofgem, the UK’s energy regulator, today indicated that the UK’s energy price is likely to rise to around £2,800 in October, up from £1,971 currently. This would imply a 42% increase in the price cap, somewhat above Goldman Sachs’ previous assumption of 35%. Notably this poushed Goldman to upgrade their UK headline inflation forecast to peak at 10.6% YoY in October, up from 10.2% YoY previously.

In a separate consultation, Ofgem is proposing changing the price cap at a quarterly, rather than bi-annual frequency, going forward.

This change could be introduced in October, and would see the price cap updated in the first month of every quarter. While no final decision has been made, Ofgem argues this change would allow consumers to benefit from falling wholesale energy costs more quickly, and would pose a lower risk for energy suppliers, given the shorter fixing period.

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As The Epoch Times’ Alexander Zhang detailed earlier, the UK government may levy a windfall tax on energy firms if they fail to reinvest their “enormous profits” in domestic energy supplies, a minister has suggested.

The main opposition Labour Party has been calling on the government to bring in a windfall tax on oil and gas producer profits, which would add another 10 percent to the corporation tax on the companies’ profit on top of the 40 percent they have been paying.

Several government ministers have openly voiced opposition to the idea, but Chancellor Rishi Sunak has not ruled it out.

Simon Clarke, chief secretary to the Treasury, warned energy companies that the tax could be levied if they do not invest more in developing more domestic energy sources.

“The sector is realising enormous profits at the moment. If those profits are not directed in a way in which is productive for the real economy, then clearly all options are on the table,” Clarke told LBC radio on Monday.

“That’s what we are communicating to the sector, that we obviously want to see this investment, we need to see this investment. If it doesn’t happen, then we can’t rule out a windfall tax,” he added.

His comments come after several Conservative ministers voiced opposition to the idea of a one-off windfall tax.

Health Secretary Sajid Javid said on Saturday that the UK has “a very hard-won but strong reputation on being pro-business, welcoming investment,” and the government must be “really careful with these sudden taxes that could have an impact in the long term that we would come to regret.”

Northern Ireland Secretary Brandon Lewis said the idea “doesn’t really work” and that the government is “very right to be wary of windfall taxes.”

Meanwhile, Jacob Rees-Mogg, the Brexit opportunities minister, argued it is wrong to raid the “honey pot of business.”

Talking to Times Radio on Sunday, International Trade Secretary Anne-Marie Trevelyan described a windfall tax as a “very short-term measure,” adding, “I don’t think a windfall tax is the most efficient way to do anything, I don’t think it drives forward at a pace.”

Education Secretary Nadhim Zahawi warned of the impact a windfall tax could have on elderly people.

He told Sky News:

“If you apply a windfall tax, [companies] will probably have to reduce or take away their dividend. Who receives the dividend? Pensioners through their pension funds.”

The Institute of Economic Affairs (IEA), a London-based free market think tank, has argued that the government could provide help to the population through other measures.

IEA Economics Fellow Julian Jessop said, “An effective package should include a mix of benefit increases, tax cuts, and measures to lower energy prices, and mainly be targeted at low-income households.”

“None of this requires a ‘windfall tax’ on energy companies,” he said.

Tyler Durden
Wed, 05/25/2022 – 02:00

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