UK Utilities Plan on Reports Sunak Working on Windfall Tax

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(Bloomberg) – The Chancellor of the Exchequer, Sage Sunak, has instructed officials to prepare plans for a possible windfall tax on oil and gas companies, as well as power generators, after the UK’s utility companies sank.

SSE PLC decreased by 11%, the most since the outbreak of Covid-19, while Drax Group PLC decreased by 17% and Centrica PLC by 9.3%. With the fall of E.ON SE, Electricite de France SA and Iberdrola SA, the UK operators listed abroad also slipped.

Read more: UK warns energy companies about windfall tax but will not disclose targets

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Citigroup Inc. analyst Jenny Ping downgraded SSE from buy to neutral and Drax from neutral to sales. “The risk of the UK windfall tax in the power sector, including renewable companies, could outweigh the benefits of inflation and commodity prices,” he wrote in a note addressed to clients.

Two people familiar with the matter said on condition of anonymity that Sunak was drawing options for a tariff but no decision had been made. Officials are examining the procedures adopted in European Union countries, including Spain and Italy, where similar taxes have been introduced, one said. The Financial Times first reported on the plan.

The government of Boris Johnson is facing intense pressure to deal with record pressures on living standards, which have been boosted by rising energy prices due to Russia’s war in Ukraine. This crisis has dragged the ruling Conservatives into an uncomfortable political landscape; Both Johnson and Sunak have repeatedly said they oppose a measure they consider anti-business, but have ultimately denied it.

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Awkward politics

Sunak said this month that he wants energy companies to invest in new jobs and their profits in protecting Britain’s internal energy. He warned that if they did not do so “significantly”, then “there is no alternative.”

“We understand that people are struggling with rising prices,” the UK Treasury said in a statement, when asked about the possibility of a windfall tax. It also reiterated the government’s view that ministers could not be completely shielded from issues of a global nature by pointing to existing support.

A windfall tax would be awkward for Johnson, as the opposition Labor Party has been calling for one for weeks. This measure has widespread public support, but it is generally regarded as a political weakness for a rival party to gain ground. In fact, the plans described by those familiar with the matter would go further than the labor proposal, the plan would expand to power generators.

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Johnson’s Conservative Party itself is deeply divided on the issue, with ministers, including Brandon Lewis of Northern Ireland, coming out against the tax.

Creating uncertainty

“It has a knock-on effect,” Lewis said in an interview. “This could cause other sectors to worry about what will happen next.”

The government’s plans would see an additional profit of বিল 10 billion ($ 12.6 billion), including power generators, including wind farm operators, according to the FT, citing government officials who did not identify it.

Read more: To avoid windfall tax, the UK may ask for a quarterly green plan (1)

Energy officials have also warned of the effects of the windfall tax. Bernard Looney, CEO of BP Plc, said a tax this month would “challenge investment in home energy.” Linda Cook, chief executive officer of Harbor Energy, said Tuesday that “financial instability creates uncertainty” and that additional tariffs would mean fewer projects have been given the green light.

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The controversy comes at a sensitive time as Britain seeks to increase domestic energy supplies to reduce its dependence on imports following Russia’s invasion of Ukraine. The UK received less than a quarter of its oil supplies from its own fields last year, with Russia accounting for about 9%.

Energy Crunch

Domestic production is also declining sharply – 10% lower in the first quarter than a year ago – after companies cut investments or spend their cash elsewhere.

According to Wood Mackenzie Ltd., if the country creates all the remaining commercially viable assets, the current flow of hydrocarbons can be suspended for a decade and the current flow of hydrocarbons can be stopped. feats – but it will make it easier for the country to implement sanctions on Russian oil and gas announced in March.

Martin Sorrell, a leading British businessman, said the government should go ahead with the windfall tax despite industry warnings.

“These are extraordinary profits and this is an exceptional time,” Sorel, executive chairman of digital advertising group S4 Capital, told Bloomberg at the annual meeting of the World Economic Forum in Davos. “They should do it.”

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