The Labour party has accused Rishi Sunak of causing uncertainty and damaging investment plans with his “haphazard, last minute” threat to impose a windfall tax on British electricity generators, a move that wiped £3bn off their share price.
The UK chancellor last month warned he would consider hitting power generators with a levy later this year when he announced a 25 per cent tax on the “extraordinary profits” made by North Sea oil and gas companies. The move is designed to raise billions of pounds to provide financial support for households struggling with soaring energy bills.
The chancellor said “certain parts of the electricity generation sector [were] also making extraordinary profits” and he was “urgently evaluating” their scale and what next steps to take.
Government insiders said Sunak wanted to “determine any course of action swiftly”, with internal Whitehall estimates suggesting he could seek to raise £3bn to £4bn from power generators.
Labour, which initially championed a windfall tax on oil and gas producers, claims that Sunak is damaging the investment environment for new energy projects by threatening to extend the levy.
The main UK opposition party highlighted falls in the share price of the companies likely to be affected by such a move, including Drax, Centrica and SSE. “In just one week, almost £3bn was wiped off the value of these companies,” Labour said.
“It’s the hallmark of this chaotic, out of touch, out of ideas government that their hastily cobbled together plan is having this sort of impact on British businesses. They must provide urgent clarity immediately,” said Rachel Reeves, shadow chancellor.
Sunak held back from announcing the windfall tax on generators last week because it required further technical work, but Whitehall insiders said he wanted to end the uncertainty within weeks.
The Treasury declined to comment on a report in the Sunday Telegraph newspaper that it was looking at whether a windfall tax would exclude electricity generated by renewables and nuclear power and instead focus on operators of gas and coal-fired power stations.
Generators privately admit they face an uphill battle as Sunak is determined to enforce a windfall tax and are trying to ensure that investments in low carbon infrastructure could be offset against the tax.
Electricity generators were caught completely off guard when the Financial Times revealed last month that the chancellor planned to expand the windfall tax to their sector. They have since warned the chancellor that their industry is far more complicated and diverse than upstream oil and gas.
Many power station and wind farm owners insist they sell their output far in advance so have not benefited from recent high power prices.
But analysts have pointed out that many companies providing “flexibility services” — generating power to fill gaps in supply when renewable sources such as wind and solar aren’t generating — will probably have received a windfall.
Generators that still hold some of the earliest contracts for renewable power generation — which award a subsidy on top of wholesale prices — are also thought to have benefited.
However, energy groups insist that even if generators have profited, many are reinvesting billions back into UK infrastructure such as new offshore wind farms or by expanding the electricity grid to support the UK’s low carbon ambitions.
The UK government is also relying on energy companies including SSE, Spain’s Iberdrola and EDF Energy to forge ahead with new clean energy projects such as offshore wind farms and nuclear plants to bolster domestic energy sources following Russia’s invasion of Ukraine.