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Ministers considering windfall tax on firms profiting from gas price rises

·4-min read
<span>Photograph: House of Commons/PA</span>
Photograph: House of Commons/PA

Companies that stand to make significant profits from record energy market prices could face a windfall tax to help ease the burden on household bills, the business secretary has suggested.

Kwasi Kwarteng told MPs on Wednesday the government was considering “all options”, including looking at the Spanish government’s plan for a €3bn (£2.58bn) windfall tax on generators and energy traders that stand to gain from the energy crisis while homes and suppliers struggle.

“I think what they’re doing in Spain is recognising that it’s an entire system. We’re in discussion with [energy regulator] Ofgem officials, looking at all options,” Kwarteng told the business select committee.

Related: Energy crisis forces EU ministers to face up to reliance on natural gas

The windfall tax in Spain will target companies that have made “excess profits” from the fast-rising energy market prices. This will be used to create a fund to cover the cost of infrastructure investments and taxes that would otherwise have come from household energy bills.

The move has been strongly opposed by companies, including owners of nuclear power plants that are not exposed to higher energy costs but are able to sell their electricity for far higher prices.

“I’m not a fan of windfall taxes,” the business secretary added. “But of course [the energy system] is an entire system and we have to think about how we can get the energy system as a whole to help itself.”

Kwarteng said safeguarding energy consumers was a government priority in its plans to tackle the deepening gas crisis, which has caused UK gas markets to climb more than fourfold in the last year after a global boom in gas demand.

The minister downplayed the role of Britain’s meagre gas storage facilities as a cause for the UK’s record gas market prices, saying the issue was “a red herring”.

Jonathan Brearley, the chief executive of the regulator Ofgem, told the committee the recent gas market price rises were “something we don’t think we’ve seen before, at this pace”.

“We do expect a large number of customers to be affected. We’ve already seen hundreds of thousands of customers affected. It may go well above that,” he added.

Brearley declined to comment on how many energy suppliers may survive the coming winter. Kwarteng said he did not expect the number to shrink to 10, contrary to some analyst predictions.

Two more energy suppliers, Avro and Green, went bust on Wednesday, adding to the five other small suppliers that have ceased trading in recent weeks.

The government is expected to focus its support on protecting the potentially millions of customers who may lose their energy supplier this winter in a wave of company collapses, rather than prop up failing businesses.

“What I don’t want to do is to give taxpayer money to companies which have come into the market only to exit the market after a year. I don’t think that’s responsible,” he said.

He added that the government’s energy price cap would remain in place to ensure households pay a fair price for their energy.

The Guardian understands that the government is also considering higher winter fuel payments, warm home discounts and cold weather payments. It may also bring forward changes to the warm home discount proposed for 2022, which would make another 780,000 people eligible for the financial help.

Ministers are expected to confirm the exact level of financial support it will offer the energy industry at the end of next month, as part of the autumn budget and the upcoming government spending review.

The government is also under pressure to address the UK’s carbon dioxide shortage triggered by the shutdown of two fertiliser plants, owned by the US company CF Industries – which provide 60% of the UK’s CO2 – due to the record gas prices.

Earlier this week, the government agreed to provide “limited financial support” for CF Fertilisers’ operating costs for three weeks while the UK’s food, drinks and meat production industries negotiate new supply contracts to secure CO2.

Kwarteng told MPs: “In a critical intervention like that you have to have a way of exiting the arrangement. That’s why I think in a critical period we needed a very short-term arrangement.”

“I’m confident that we can get other sources of CO2 in that period, there was an immediate crisis and the deal that we reached solved the immediate problem.”

Boris Johnson dismissed suggestions that the issues with gas prices could lead to panic buying in supermarkets. The prime minister told reporters in Washington DC: “I don’t think that will happen. I think we’ve got very good supply chains … and what we’re seeing is the growing pains of a global economy recovering rapidly from Covid.”

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