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Pensions warning over windfall tax as Cabinet split widens

·6-min read
North Sea companies have been trying to fend off a windfall tax by pledging to invest billions of pounds in the UK
North Sea companies have been trying to fend off a windfall tax by pledging to invest billions of pounds in the UK

A windfall tax on energy companies risks harming people's pension pots, a senior minister has said amid widening Cabinet splits over the policy.

Education secretary Nadhim Zahawi said a one-off levy on energy companies would likely result in dividends being slashed or axed altogether.

He said: "If you apply a windfall tax, [companies] will probably have to reduce or take away their dividend. Who receives the dividend? Pensioners through their pension funds.

"Investment has to be real, which is what I think Rishi (Sunak) will demand of all these companies and to see a roadmap towards that investment. We're not taking any options off the table."

Opposition parties are pushing for a windfall tax to help families cope with a once-in-a-generation cost of living crisis. On Sunday the boss of the UK’s second largest energy supplier warned that 40pc of households face being in fuel poverty when energy bills are increased again in October.

Michael Lewis, chief executive of E.ON UK, called on the Government to step in with further help for households confronted with an “unprecedented” surge in costs.

North Sea companies have been trying to fend off a windfall tax by pledging to invest billions of pounds in the UK, with some ministers arguing that higher investment is the only way to reduce families' bills in the years ahead.

Italian oil major Eni became the latest North Sea producer to pledge significant investment in the UK on Sunday.

The company said it planned to spend at least €2.5bn (£2.1bn) in the UK over the next four years, about 20pc of which would go towards oil and gas production and the rest towards green energy and carbon capture.

Shell has said it plans to invest £20bn-£25bn over the next 10 years, while rival BP has said it will invest £18bn by 2030.

Eni told the Financial Times a windfall tax "might have the effect of slowing down future investments."

Alok Sharma, the Cop26 president who sits in the Cabinet, warned oil and gas firms to step up on their “vague promises” and deliver detailed quarter-by-quarter investment plans after making “huge, huge profits”.

Mr Sharma told The Telegraph: “They've talked about how much they might invest out to 2030. I think what we need to see is that near term detail, and we need to see those investment plans on a quarter by quarter basis.

“It’s a question of transparency and ultimately it’s also a question of fairness and I think the oil and gas majors have to respond to that.”

He added that the Government must “keep all options on the table” as the divide over the windfall tax in the Cabinet grows. Health secretary Sajid Javid said on Sunday he was “instinctively” opposed to a windfall tax.

The Treasury is reported to be considering a tapered levy, which would see companies which are prepared to invest in energy supplies hit with a lower rate of tax.

Treasury officials believe this would stimulate investment, but some Government sources have cautioned that it would not be enough to win over critics in the Cabinet who see any form of windfall tax as “unconservative”.

“People still dislike the idea of retrospective taxation,” one source said, while another added that it is “completely insane that we are floating this”.

They said: “This is just a classic Labour policy that doesn’t tackle the unintended consequences. In a hot summer are we going to tax ice cream companies?

“My concern is that it is just a Team Rishi way of making him seem cuddly and popular and like he is doing something.”

When asked about the windfall tax on Sunday, Mr Zahawi said it is important to “look at all the options”.

Meanwhile his Cabinet colleague Anne-Marie Trevelyan said the Government is encouraging energy companies to use surplus profits to invest in green alternatives rather than impose a tax on them which would alleviate the cost to consumers.

When asked whether she supported a windfall tax on energy companies, the International Trade Secretary told Times Radio: "As the Chancellor said, it's really important that he's able to keep everything under review.

"He has set out a very clear position that he wants these energy companies, as they have made unexpectedly higher profits because of these price hikes, that they use that to invest in the clean energies of the future.

Jesse Norman MP, who was financial secretary to the Treasury until last year, became the latest Conservative voice to speak out in favour of the policy.

Writing on Twitter, he said that few would embrace the idea of a windfall tax in normal times but “these are extraordinary times and the arguments against it at present are very weak”.

He said there are several precedents for such a tax, including the Bank levy which was introduced under George Osborne in the wake of the 2008 financial crash, adding that the “public finances were in a much better shape than they are now”.

Mr Norman, who is also a former Paymaster General, pointed out that the Government was “hugely supportive” of the energy sector when tens of thousands of jobs were at risk following the oil price crash in 2014.

“Do those who oppose a levy now on free market grounds also believe that 2014 intervention was mistaken?” he asked.

“Do they think oil and gas companies should enjoy a one-way bet, in which they benefit from public support when prices fall but make no extra contribution when prices rise?”

A Downing Street source said they are “not ruling anything out” but added that a windfall tax “in its simplest form in the way Labour are pushing it” is “not a very Conservative thing to do”.

It comes as the number of pensioners handing back winter fuel payments to the Government has dropped by 78pc as even wealthier retirees struggle in the cost of living crisis.

Only 186 pensioners opted out of winter fuel payment in the 2021-22 financial year out of more than 11 million recipients, falling from 846 the previous year, a Freedom of Information request seen by this newspaper has revealed.

Just one in every 60,000 over-65s declined the payment last year despite one in five people in this age group being classed as a millionaire, according to the Office for National Statistics.

All people of pensionable age are paid the state benefit regardless of their financial status.

Caroline Abrahams of Age UK, the charity, said the winter fuel payment was proving to be a more crucial lifeline for pensioners than ever before, including middle class retirees.

“With spiralling energy prices, older people are finding it more and more difficult to heat and power their homes,” she said.

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