Power giants hit by Chancellor Rishi Sunak’s windfall tax fears

Shares in London’s biggest electricity firms sank yesterday amid fresh fears they could be the next target of Rishi Sunak’s windfall tax. 

The Chancellor has unveiled a 25 per cent levy on oil and gas company profits to fund support for households being squeezed by the cost-of-living crisis. 

These firms have raked in bumper profits over the last year as the emergence of the economy from the pandemic and the Russian invasion of Ukraine caused prices of oil and gas to soar. 

But Sunak also hinted that his windfall tax could be extended to electricity companies, which have also seen profits boom as a result of the surge in bills. 

It is thought the Chancellor could announce an expansion of the tax within the next month. 

The Treasury declined to comment on any timeline. 

Fears of fresh levies sent shares in London-listed electricity generators into retreat, with SSE slipping 1.6 per cent, or 29p, to 1752.5p and British Gas owner Centrica down 2.4 per cent, or 1.9p, at 77.24p. 

Both companies own gas-fired electricity plants across the UK. 

Meanwhile, Drax, a FTSE 250 firm which owns a large power station near Selby in North Yorkshire, also dropped – by 4.2 per cent, or 28.5p, to 656p. 

On Thursday, the Chancellor said the Government was ‘consulting with the power generation sector’ and ‘evaluating the scale of these extraordinary profits’ before deciding what to do. 

The comments were seen as a heavy hint that generation companies could soon find themselves being hit with a windfall tax. Speculation intensified after Sunak refused to rule out further relief for household fuel bills in media interviews. 

But some have warned such a move risked investment in the UK’s renewable energy sector at a critical time as the Government attempts to hit net zero emissions targets.

Martin Young, senior analyst at Investec, said that introducing a windfall tax for the nation’s electricity generators would be ‘immensely complicated’ and could leave the Government open to legal challenges. 

He added the risk of investing in the UK’s energy market had ‘undoubtedly’ increased, meaning companies may be less willing to pour cash into British projects in the future.

‘Is a windfall tax on generation, when you want to fully decarbonise your power sector by 2035, the right thing to be doing? Absolutely not. It’s the wrong thing,’ Young said. 

Fears a windfall tax could jeopardise investment in British energy followed comments from oil giant BP that it may rethink its plans to invest £18billion following Sunak’s announcement this week. Meanwhile, SSE has been attempting to avoid getting hit with the new levy by unveiling plans to invest £24billion in renewable energy by 2030, double its previous target.