Windfall tax on energy firms may hit 30% and run to 2028
The windfall tax on energy companies could be raised to 30 per cent and extended by three years, amid internal government predictions that oil and gas prices will not return to normal levels for the rest of the decade.
Under options being considered by Jeremy Hunt, the chancellor, the energy profit levy would increase by up to five percentage points to raise billions of pounds in extra revenue on top of the £25 billion it had been due to bring in by 2025. The tax could be extended until 2028, the end of the period for which the Office for Budget Responsibility has drawn up forecasts, according to senior government sources.
Officials have also been working on plans that would extend the levy beyond oil and gas companies to electricity generators.
While no final decisions have been taken on the November 17 budget, insiders say Hunt and Rishi Sunak are receptive to the idea. Last week Shell reported global profits of $9.5 billion (£8.2 billion) in the third quarter.
Hunt is likely to justify the rise on the grounds that the costs of buying energy have more than quadrupled since Covid-19 and the invasion of Ukraine.
According to a government source, before the pandemic the UK was spending £40 billion annually on energy. It is due to spend £180 billion this year. Treasury forecasts also suggest that wholesale gas and energy prices, while falling, are expected to remain at an “elevated level” until at least 2030.
The talks are taking place amid wider discussions on how to plug a £40 billion fiscal black hole made worse by Liz Truss’s disastrous mini-budget.
The Sunday Times
Struggling energy suppliers thrown financial lifeline in boost for Rishi Sunak
Struggling household energy suppliers have been thrown a financial lifeline by a key player in the market, reducing the risk that taxpayer bailouts will be needed in a boost for Rishi Sunak.
Elexon, which manages the electricity trades that keep Britain’s lights on, has significantly cut the size of the deposits it requires suppliers to offer for power plants when they order electricity in advance.
The reduction was triggered by a sharp fall in gas prices owing to high storage levels and mild weather across Europe, and will ease pressure on cash-strapped suppliers after months of turmoil.
It also means suppliers are less likely to tap up a taxpayer-backed scheme set up by the Treasury and Bank of England to prevent them from running out of cash.
Signs that the market is stabilising will be welcomed by the Prime Minister and Treasury as they prepare to announce up to £50bn of tax rises and spending cuts next month to bring order to the public finances.
Elexon, which is owned by National Grid’s electricity system operator, takes a deposit from energy suppliers when they order power for delivery at a future date as part of efforts to guard against the risk of sudden bankruptcies.
Elexon works out the difference between how much suppliers and generators say they will produce or consume and how much the actually produce or consume in any half-hour period, and takes payments to cover any mismatches.
The amount of money that it demands up front for these payments jumped when gas prices surged following the invasion of Ukraine, adding to fears of a cash crunch that could cause severe disruption and in the worst case lead to blackouts.
Elexon had planned to increase its “credit assessment price”, which helps determine how much money it asks traders for, from £350 per megawatt hour to £450 per megawatt hour, from November 1.
However, the falling electricity prices mean it has decided to cut this to £250 instead.
Elexon said: “The Credit Committee considered the latest forward market prices for November 2022 and acknowledged prices were decreasing recently.
“Parties… should review the amount of credit cover lodged.”
The Daily Telegraph
Ovo’s parent Imagination Industries paid its directors £27m in loans
The parent company of Britain’s third-largest energy retailer paid £27 million in loans to its directors amid the global crisis in energy prices last year, filings show.
The loans made by Imagination Industries, which owns Ovo, were disclosed in the company’s latest accounts covering the year to December 2021.
Imagination has only two directors: Stephen Fitzpatrick, its billionaire founder and chief executive, and Vincent Casey, its chief financial officer. Ovo was launched in 2009 by Fitzpatrick, a former City trader, and supplies energy to 4.5 million customers.
The £27 million loan to the directors, first reported by The Mail on Sunday, the terms of which are not known, was settled via a share buyback. There is no suggestion of wrongdoing.
A leading accountant, who asked to remain anonymous, said: “This company looks after millions of customers going into winter and, if it goes down like Bulb , the government is going to have to step in . . . This is the wrong way for a company that looks after domestic customers to behave.”
PwC, the accountancy firm, expressed “material uncertainty” over the group’s ability to continue trading as a going concern, documents show.
The Times
Electric car owners may face taxes within three years
Electric car and van owners could be hit with road tax bills in less than three years, under plans being considered by Jeremy Hunt for the Autumn Statement.
A Whitehall source claimed it was now inevitable that electric vehicles would be subject to road tax “at some point”, adding that the Treasury was considering “when that should be”.
One of the options being considered by the Treasury to help plug the projected hole in public finances is to require owners of electric vehicles to begin paying VED from the 2025/26 financial year.
Mr Hunt is separately examining ways to reduce or scrap reliefs and allowances currently offered as part of capital gains tax.
A Government source said the Chancellor was responding to “an emergency situation that will require tax rises and spending cuts to stabilise the markets and put our finances on a more sustainable footing.”
But, Kit Malthouse, who quit as education secretary last week, and Jacob Rees-Mogg, who was Liz Truss’s business secretary, both issued warnings about potential tax hikes, after Mr Hunt’s earlier decision to reinstate the planned corporation tax increase from next year.
A Whitehall source said: “Everyone knows that electric vehicles will have to be subject to road tax at some point. The Treasury is considering when that should be, while ensuring uptake isn’t disincentivised in the short-term.”
Currently, zero vehicle excise duty is paid on electric vehicles, with the government previously guaranteeing the exemption until at least 2025 – the point at which the Treasury is now considering levying the tax on zero-emission cars and vans. The move would come five years before the planned 2030 ban on the sale of new petrol vehicles, leaving officials examining ways in which those buying new electric vehicles do not face an immediate penalty.
The Daily Telegraph
Johnson Matthey chief says UK has fallen behind in hydrogen power race
The UK has lost its position as one of the leaders in the global race to develop hydrogen power, the chief executive of Johnson Matthey has warned, as he said the FTSE 100 group could take more business to the US as Washington unleashes funding for green projects.
Liam Condon said businesses would bypass the UK if the country did not introduce more supportive policies, and that an “incredible bureaucratic layer” was holding Europe back from developing the infrastructure needed to support hydrogen power.
“The UK was a frontrunner ,” said Condon, who since taking over Johnson Matthey in March has set out a plan for the 205-year-old industrial conglomerate to focus on developing sustainable technologies.
“But we’ve now got to keep competitive with US policies, which have clearly moved ahead,” he told the Financial Times. “Otherwise, investment will simply drift off to the US.”
Many countries have looked to hydrogen power as they set decarbonisation targets to meet climate goals. The UK, which is aiming to achieve net zero emissions by the middle of the century, declared its ambition in 2019 to become “a world-leading hydrogen economy”, as it announced £105mn in funding for businesses to develop low-carbon fuels.
But in recent months businesses have turned to the US, where the Senate in August passed the $369bn Inflation Reduction Act to support clean energy programmes, which includes tax credits for hydrogen projects.
Condon said Johnson Matthey, which manufactures fuel cell components and catalysts for generating hydrogen power, is “reviewing additional investments” in the US as it anticipates rising demand in the country, adding that the group remained committed to the UK.
In mainland Europe, however, he said organisational obstacles were holding back progress.
“The money is there, the intent is there . . . but there’s an incredible bureaucratic layer that slows down that money actually getting to the companies,” he said. “It’s unlikely that any single private company can afford to build the infrastructure . So there needs to be governmental support.”
The Financial Times
Consultation begins on carbon capture pipeline
Plans to transport captured carbon dioxide for safe storage in the North Sea have been put out to consultation.
The Humber Low Carbon Pipelines (HLCP) aims to clean up some of the region’s biggest industrial emitters.
A second pipeline would transport hydrogen for use as a more environmentally friendly alternative to fossil fuels, National Grid said.
The pipelines would run from Drax in North Yorkshire to Easington on the East Yorkshire coast.
According to National Grid, The Humber region is responsible for producing 12.4 million tonnes of carbon dioxide (CO2) emissions per year.
This means it can play a crucial part in helping the UK to transition to a low-carbon economy and reach its ambitions around net zero by 2050, it said.
“Our proposed project aims to deliver new onshore pipeline infrastructure to transport the captured carbon emissions from the region’s industrial emitters for safe storage in the North Sea, and enable industries to fuel-switch from fossil fuels to low-carbon hydrogen,” a spokesperson said.
Andy Benjamin, director of carbon capture, usage and storage at National Grid Ventures, said: “This project would provide the critical infrastructure to help protect and create skilled jobs across the Humber and is an important part of the Humber’s economic future.”
Talking about the consultation, which runs until the 29 November, he added: “It’s vital for us to understand what local people think of our plans, and we look forward to meeting communities along the proposed route to share more about the project, answer questions and receive feedback.”
BBC News
Utility Week’s weekend press round-up is a curation of articles in the national newspapers relating to the energy and water sector. The views expressed are not those of Utility Week or Faversham House.