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Windfall tax could hit off shore electricity companies

By JULIAN SHEA in London | China Daily Global | Updated: 2022-05-25 09:27

Britain's Chancellor of the Exchequer Rishi Sunak attends a cabinet meeting at 10 Downing Street in London, Britain May 24, 2022. [Photo/Agencies]

Britain's Chancellor of the Exchequer Rishi Sunak is reportedly considering going one step further than the widely talked-about windfall tax on oil and gas companies by expanding the possible charge to electricity generating companies as well.

Soaring fuel prices, and the warning of further significant increases to come later in the year, are the main driving forces behind the United Kingdom's cost-of-living crisis, which has become the dominant political issue in the country.

Recently, Conservative Party members of Parliament voted to reject a proposal by the opposition Labour Party to impose a windfall tax on energy companies, to support those billpayers who have been most hard-hit, but senior government figures have hinted that they could reverse their position over the issue, and now the Financial Times reports that Sunak wants to go even further than the opposition had suggested.

Sunak is often portrayed as a high-tax chancellor, a label he has been keen to reject. At the prestigious Mais Lecture delivered at the Bayes Business School in London in February this year, he said he "firmly believe in lower taxes".

This does not sit easily, however, with the reality of the country currently having its highest tax rates since the late 1940s.

The Financial Times says that Sunak has asked his staff to come up with plans for taxes on more than 10 billion pounds ($12.5 billion) made by electricity companies, including operators of windfarms.

The global energy market was already in a state of flux before the Russia-Ukraine conflict began, which has only exacerbated supply issues across the whole of Europe, pushing prices up even further, with billpayers feeling the full impact.

Unsurprisingly, the windfarm sector has greeted the idea with dismay. A letter published on Tuesday by the trade body Off-shore Energies UK, which represents more than 400 companies in the sector, said that such a move coming so early in the recovery process after significant recent losses could end up doing more harm than good.

"A one-off windfall tax on energy producers ... will only further reduce investor confidence in the UK, the ripple effect of which we will feel for many years to come".

"It will do nothing to address the cyclical nature of an energy system linked to global supply and demand, with the UK becoming much less attractive to investors who will look elsewhere for the long-term stability they require to progress major energy projects," the letter continued, adding that putting companies off investment would harm employment prospects.

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