Weekend press round-up: Johnson and Sunak have competing visions over windfall tax

The prospect of a windfall tax on gas and oil companies dominated this weekend’s headlines, with reports the prime minister and chancellor are at odds with each other over the tax. Elsewhere Eon boss Michael Lewis warns up to 40% of his company’s customers will be in fuel poverty by October. There are also reports Italian oil major Eni plans to invest €2.5bn in the UK over the next four years.

In the Tory storm over the windfall tax, Rishi Sunak and Boris Johnson have competing visions

Boris Johnson had just come off the phone with Volodymyr Zelensky, the Ukrainian leader, when he was informed that he would not be facing any further fines from the Metropolitan police over the parties scandal. While some aides were jubilant that his job was safe, the man himself seemed nonplussed.

“Mentally, he had already moved on,” said one aide. “There was not a fist in the air or a high five from him. He was surprisingly subdued.”

Johnson said: “Now we’ve got to get on with everything else.” Downing Street sources say that, in recent weeks, the prime minister has been spending 60 per cent of his time on the cost-of-living crisis, the “everything else” clogging his inbox.

While Johnson will endure an awkward time when the Sue Gray report — into the culture of lockdown-breaking over which he presided — is released this week, his most awkward meetings are likely to be with Rishi Sunak, the chancellor. The men have been locked in conditions one minister likened to “a papal conclave” over what to do to curb the impact of rising energy prices.

It can now be revealed that Sunak is attracted to a windfall tax on the energy companies, whose profits have soared thanks to the rising price of oil and gas, but one that offers them different rates of tax based on what they are prepared to invest.

Under the proposal, firms such as BP and Shell would face a lower tax rate if they promise to dramatically increase the billions of pounds they are prepared to pour into building new facilities.

“There could be a more pro-investment way of doing a windfall tax,” said a source familiar with the chancellor’s thinking. “He’s certainly of the view that there is a not-so-sledgehammer way you could do it. You could actually bring in quite a lot of money. You can peg it to commitments and say the rate will come down if they make investments.” In this scenario, far from depressing investment which might boost economic growth, a windfall tax could be used to stimulate it.

Treasury insiders say that Sunak feels such a measure may be necessary because the threat of a windfall tax has not prompted the energy companies to turn on the spending taps, despite a huge increase in profits.

Shell has already pledged £25 billion and BP £18 billion, but a source said: “A lot of that they announced pre-profits and a lot of it is not UK-focused. These guys are surprising themselves at what they’re raking in and are not being proactive.” The Tories’ private polling suggests that the windfall tax is backed by more than 80 per cent of the public.

However, Sunak’s plan has run into a wall in the form of Johnson’s new advisers: David Canzini, Guto Harri, Steve Barclay and Andrew Griffith, who all — in principle at least — oppose the measure on the grounds that it is “unconservative”.

Johnson is prepared to sanction a windfall tax, but only if the Treasury agrees to spend some of the money on massive new investment in nuclear power stations and offshore wind farms, which Sunak has so far stonewalled, and makes a more “compelling” and “conservative case” for doing so.

“The starting point for all of us is that Tories don’t do windfall taxes,” a source close to the prime minister said. “If we have to, it has to be because it raises a lot of money, it has to be worth it because it doesn’t damage investment; and it has to be because we are going to do something better with it than the private sector will do for themselves. None of which has been articulated compellingly enough by anyone to this point.”

In a further waspish broadside, a senior No 10 official complained that the Treasury had consistently blocked the prime minister’s wish to build new infrastructure to rebalance Britain’s energy supply away from imported oil and gas. “Boris wants to spend money on things that bring noticeable, tangible benefits in the long term,” he said. “Spending money on nuclear power stations and offshore wind: fantastic. The Treasury seemed to make that as excruciatingly difficult as they possibly could.”

Spurred on by Canzini, Johnson’s position is that spending the proceeds of a windfall tax — just “shovelling” money into people’s pockets to appease “bleeding hearts” — is only a short-term fix and that the money will be “here today and gone tomorrow”.

Colleagues say Harri, the director of communications, has crystalised the internal debate into a choice between providing “pain relief” for the immediate cost of living and “surgery” that will boost the economy for years to come.

Full story in The Sunday Times

E.On UK boss warns 40% of customers face fuel poverty

One of the UK’s biggest energy suppliers has warned that up to 40% of its customers will be in fuel poverty by October as it called on the government to help struggling homes.

E.On UK boss Michael Lewis said the rise in energy prices is “unprecedented” and a growing number of its customers are in arrears.The government is facing calls to levy a windfall tax on oil and gas firms.

Education Secretary Nadhim Zahawi said Rishi Sunak will look at all options.

“We will review everything,” he told the BBC, adding: “We’ve got £22bn in the next 12 months of help to those people who need it the most.”

However, Mr Lewis said around one in eight of its customers were already struggling to pay their bills, even before the weather turns colder and the new energy price cap comes into force in October, which is expected to rise significantly.

“We do need more intervention in October and it has to be very substantial,” he told the BBC’s Sunday Programme.

A household is considered to be in fuel poverty if it has to spend 10% or more of its disposable income on energy.

Mr Lewis said around a fifth of its customers were already in fuel poverty but that is expected to rise significantly later this year.

Energy regulator Ofgem lifted the price cap on gas and electricity bills in April, adding around £700 to the average household energy bill to take it to £1,971.

For the 4.5 million people on pre-payment meters – which are typically used by people on lower incomes – the price of energy has now risen further, by an average £708, to £2,017 a year.

Due to the rising cost of wholesale gas, however, the price cap is expected to increase and take the typical energy bill to as much as £2,800, if not higher.

“In my 30 years in the energy industry I’ve never ever seen prices increasing at this rate,” said Mr Lewis.

Following the rise of gas and electricity prices in April, the UK’s inflation rate reached a 40-year high of 9%.

He declined to comment on whether the government should impose a windfall tax on companies benefitting from the sharp rise in crude oil and wholesale gas prices which has been exacerbated by Russia’s invasion of Ukraine.

But Mr Lewis said it is important the government taxes “those with the broadest shoulders”.

Recently, Shell reported a record £7bn profit in the first three months of this year while BP made £5bn, the highest for 10 years.

A windfall tax has been backed by Labour, the SNP and Liberal Democrats.

Prime Minister Boris Johnson is reluctant to introduce a tax over concerns it could hit energy firms’ investments in the UK. But the Sunday Times reported that the chancellor is considering implementing the levy.

Mr Sunak recently told the BBC that he is “not naturally attracted by the idea of” a windfall tax.

“But what I do know is these companies are making a significant amount of profit at the moment because of these very elevated prices.”

Mr Sunak said that he wants to see “significant investment back into the UK economy to support jobs, to support energy security”.

“And if that doesn’t happen, then no options are off the table,” he said

Mr Lewis suggested that the government could substantially increase the size and scope of the Warm Homes Discount scheme.

It offers those in receipt of certain benefits the option to seek a one-off £140 payment.

Mr Lewis said the scheme “works well” but told the BBC “the scale of this is simply too big for us to manage at the moment”.

“If we were to expand the scope from three million to six million customers and increase the payment from £140 up to £600 that would make a very, very big difference to those customers on lower incomes.”

A Treasury spokesperson said “while we can’t shield everyone from the global challenges we face, we’re supporting British families to navigate the months ahead with a £22 billion package of support.

“The chancellor has been clear that as the situation evolves, our response will evolve – and we stand ready to do more.”

BBC News

Eni plans €2.5bn UK investment as calls for energy windfall tax grow

Italian oil major Eni plans to spend at least €2.5bn in the UK over the next four years as the government demands oil and gas companies significantly increase investment in Britain’s energy system or face a windfall tax on their soaring profits.

The commitment by the group — the ninth-largest gas producer in the North Sea last year — follows bigger spending plans by rivals BP and Shell, which this month reported bumper quarterly profits. Shell has said it will invest £20bn-£25bn over the next decade, while BP has promised to spend £18bn by the end of 2030.

UK chancellor Rishi Sunak is coming under increasing pressure from MPs to impose a windfall tax on energy groups to help households struggling with soaring energy bills.

Treasury and business department officials — who are concerned such a charge would deter investment — are urging oil and gas companies to expand their investment plans further.

“We want to see spending. I’m not going to quantify it, but we want to see actual real spending, and there’s evidence that they’re doing that,” business secretary Kwasi Kwarteng said in a television interview on Friday.

Offshore Energies UK, a trade body for the oil and gas industry, said this week that the sector expected to spend £200bn-£250bn over the next nine years. That compares with equivalent expenditure of £201bn between 2012 and 2021.

Eni told the Financial Times: “In line with OEUK we believe that it would be best to ensure energy companies speed up investments in the energy transition rather than imposing a windfall tax which might have the effect of slowing down future investments.”

Harbour Energy, which is forecast to be the largest oil and gas producer in the North Sea this year, told the government this week that it planned to invest £6bn in further upstream activity in the next three years, according to a person familiar with the plans.

But several of the UK’s largest producers are yet to disclose any investment plans. France’s TotalEnergies, another large North Sea producer, told the Financial Times it did not disclose figures on planned investment.

NEO Energy, Spirit Energy, Repsol, CNOOC and APA Corporation’s Apache, all of which are expected to be among the top 10 UK producers, are also yet to publish details of future investment.

Eni said 80 per cent of its €2.5bn in investments would be spent on carbon capture and renewable energy projects, and 20 per cent on oil and gas production.

The industry argues that it is already a major taxpayer in the UK and that an additional levy could make future investment more difficult.

Oil and gas producers in the North Sea pay a 30 per cent corporation tax and a 10 per cent supplementary charge, which compares with a 20 per cent corporate tax rate for most other companies. OEUK expects the sector to pay £7.8bn in taxes this year.

Given the comparatively high existing tax rate, some industry executives have questioned how much more revenue a windfall tax would raise, particularly as they expect it could apply only to producers’ UK earnings.

Financial Times

Scramble to stop Russian uranium fuelling Britain’s nuclear power

EDF is seeking alternatives to Russian uranium used at one of its largest UK power stations amid the growing fallout from the war on Ukraine.

Its Sizewell B station on the Suffolk coast is using uranium from Russia bought before the war, and is set to be refuelled with pre-war stocks containing Russian uranium next year.

The French state-owned company has about two years of uranium supply in stock for the station and said it was “considering alternative options for future refuelling”.

Russia’s war on Ukraine has sent shockwaves through global energy markets, as countries try to cut off Moscow or replace supplies amid fears of disruption.

On Saturday Moscow cut off gas supplies to Finland after it refused to pay in rubles and applied to join Nato, having already cut off Poland and Bulgaria.

The US has banned Russian oil imports while the UK is planning to do the same by the end of year, and the EU is trying to cut its demand for Russian gas by 25pc this year. British steel firms have also stopped buying Russian coal.

Russia is one of the world’s largest uranium suppliers, thought to have about 40pc of global capacity for uranium enrichment.

Its allies Kazakhstan and Uzbekistan are also dominant, the three countries together supplying about half of the uranium used in US nuclear power plants.

State-owned uranium company Rosatom claims 17pc of the global nuclear fuel market.

EDF owns the UK’s entire fleet of eight nuclear power stations, which generate about 16pc of UK electricity over the year.

Sizewell B is the only pressurised water reactor, and the only one using uranium from Russia, EDF said. It supplies about 3pc of UK electricity.

A spokesman for EDF said: “EDF is complying with all the British and French Governments’ requirements regarding sanctions imposed on Russia.

“The fuel from the AGR [advanced gas-cooled reactor] fleet does not originate from Russia and any fuel at Sizewell B that has originated from Russia was sourced well before the conflict commenced.

“We will not need any input from Russia to run our plants for at least the next two years, and we are considering alternative options for future refuelling beyond that.”

Nuclear power is at the heart of the UK’s long-term energy strategy. Prime Minister Boris Johnson has said he wants eight new reactors to be built by 2050 to replace closing generators and supply about 25pc of projected electricity demand.

Sizewell B is the only one of the UK fleet not set to close down by 2028 as the other seven ageing plants are decommissioned after years of operation.

Last week, MPs called on the Government to “urgently review” whether the UK’s ageing nuclear power fleet could be kept open longer than planned, amid concerns about the gap they will leave in power supplies.

Sir Geoffrey Clifton-Brown MP, deputy chair of the Public Accounts Committee, said there was “huge uncertainty” over commissioning replacement energy projects, and flagged the risks of relying on imported energy.

EDF is considering keeping Sizewell B open for at least 20 years beyond its planned closure date of 2035, arguing this will help protect jobs and energy security.

The company is also building the new Hinkley Point C plant in Somerset, but late on Thursday pushed its start date back by a further year, to June 2027, and costs up by a further £1bn.

It marks the fourth budget increase for the project since it signed a funding deal with the Government in 2016, when it was set to cost £18bn and be ready by 2025.

In a note to staff, Hinkley Point C managing director Stuart Crooks said the pandemic had hampered work rates, while labour shortages and high energy costs are adding to the ongoing challenges.

EDF is also in negotiations with the ministers about building a second new plant, Sizewell C in Suffolk, which it argues is “unlikely” to face the same challenges as Hinkley Point C as it is a “copy” and lessons can be learned.

The plant is likely to be financed using a funding mechanism new to the UK’s nuclear sector in which the risks of cost overruns are shared between developers and consumers.

The aim is to bring overall costs down by cutting financing costs, but critics have raised concerns about the risks borne by consumers.

The Telegraph

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.