Windfall tax talk rattles Tories as Rishi Sunak reportedly backs the levy

The prospect of a windfall tax on large energy firms has provoked a fierce Tory backlash, after it was revealed yesterday Rishi Sunak is in favour of a levy.

Sunak has refused to rule out a windfall tax – a signature Labour policy that would see money given to households to offset rising energy prices – despite several cabinet ministers coming out against it.

The Sunday Times revealed Sunak wants to hit energy companies with a one-off tax, but also offer them concessions if they invest billions of pounds ramping up domestic energy projects.

A Treasury spokesperson told City A.M.: “The chancellor has been clear that as the situation evolves, our response will evolve – and we stand ready to do more.”

Number 10 has so far rebuked any notion of a windfall tax, however there is speculation Boris Johnson is considering the policy.

Many Tory backbenchers have expressed their stern opposition for a windfall tax on the energy sector and a backlash is expected if Number 10 approves the policy.

One Tory backbencher said a large group of Tory MPs will “read Boris the riot act” if he green lights the new tax.

Tory MP Craig McKinlay, head of a net-zero sceptic campaign group in parliament, told CIty A.M. “taxing energy producers more seems a bizarre approach if we want lower energy prices during a cost of living crisis”.

Health secretary Sajid Javid, International Trade Secretary Anne-Marie Trevelyan, and Northern Ireland secretary Brandon Lewis also explicitly came out against a windfall tax over the weekend.

Javid said: “Businesses like certainty and of course there’s no such thing as pure certainty, but when it comes to taxes, I think we’ve just got to be really careful with these sudden taxes that could have an impact in the long term that we would come to regret.”

Tory MPs voted against a windfall tax last Tuesday, with Labour’s motion defeated 310 votes to 248 in Parliament.

However, former Chancellor George Osborne expects the government to bring in a windfall tax, even though he does not support a new levy.

Osborne told Channel 4: “I think he will do one but I have to say it’s not really addressing the serious fiscal problem the country is going to have in the next two or three years.”

Instead Osbrone was in favour of “straightforward” measures such as putting cheques in the post to the poorest families.

The growing possibility  of a levy on North Sea oil and gas companies has also faced stringent pushback from the domestic energy sector.

Industry body Offshore Energies UK wrote a letter to Business Secretary Kwasi Kwarteng last week, warning that raising taxes could jeopardise its supply security strategy, a key government policy following Russia’s invasion of Ukraine.

Chief executive Deirdre Mitchell said: “When ‘windfall taxes’ have been used in the past, data demonstrates that investment has fallen away, undermining capex and opex activities, jobs, and production.”

Meanwhile, BP boss Bernard Looney has implied any new taxes would put the energy giant’s pledge to spend £18bn in the UK energy sector over the decade into doubt.

He said: “By definition, windfall taxes are unpredictable, and so would challenge investment in home-grown energy.” Rival energy firm Shell has also committed £25bn to ramping up domestic energy generation across the UK over the coming ten years.

Energy companies operating in the North Sea already cough up a 40 per cent special rate, more than double what other corporations pay to do business in the UK.

The Office for Budget Responsibility forecasts that that oil and gas producers will collectively pay £7.8bn to the taxman this year.

This is £5.3bn higher than forecast in October last year, and is roughly equal to one per cent of the nation’s entire tax revenue.

This also a 20-fold increase on 2020-21, when plummeting demand saw energy firms suffer multi-billion-pound losses.

Unlike other industries they were not offered public money to prop up their operations.

However, with Shell and BP swimming in record profits powered by soaring oil and gas prices, the energy sector has become a target for tax-taking measures to ease household bills.

Shell is set for a showdown with activist investors later this week at its annual general meeting over its climate goals, with the looming possibility of a windfall tax also likely to be in the minds of shareholders.