UK tells energy giants to invest more or risk windfall tax
UK Business Secretary Kwasi Kwarteng warned energy companies they may face a windfall tax if they do not “step up” on new investments, but refused to say how much they must spend to avoid it.
“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,” Kwarteng said Friday in an interview with Bloomberg TV in the US. Companies are “very aware that if they don’t step up to that plate then they may well be subject to a windfall tax. I think that’s a reasonable conversation.”
Kwarteng’s comments come as Boris Johnson’s government faces intense pressure to offer more support to Britons struggling with the worst squeeze on living standards since the 1950s as inflations surges. The idea of a windfall tax on energy firms, who have benefited from rising prices, is gaining political support including among some members of the UK ruling Conservative Party.
Internal government polling has found that as many as 80% of people would back a tax, according to the Daily Telegraph newspaper. But ministers are worried a levy risks deterring investment, while more traditional Tories are against a policy they regard as being anti-business.
Kwarteng reiterated his own preference is not to impose a windfall tax, while stressing that Chancellor of the Exchequer Rishi Sunak has said the option to impose one is there if needed.
It’s dangerous political ground for the Tories, who face accusations from the opposition Labour Party of being out of touch given the government often talks about longer-term strategies to boost the economy when voters are calling for rapid help. Labour tried to ram that point home in the House of Commons with a vote on a windfall tax - which the party says could raise 2 billion pounds that the Conservatives voted against.
Sunak has left the door open to a levy, saying companies must make a “significant investment” and that “no option is off the table” if they don’t. It’s a significant dilemma because if the Tories adopt the policy now, Labour will present it as evidence they’re the party to be trusted on the economy.
But it’s not clear what the government is hoping for from firms, and in private oil producers also say they haven’t been set any government targets for avoiding a tax. Three people working in oil producing companies said that despite the chancellor’s warnings, no clear metrics had been set out.
“I think the principle’s right, but now it needs some definition,” former BP executive John Browne said in an interview Thursday. He pointed out that if the government demands companies keep output stable in the North Sea, that would be a “very high standard” given “it’s going towards its last legs.”
On Friday, Kwarteng said companies including Shell Plc and BP Plc know what the government expects of them, and ruled out demanding firms set out their commitments in “any kind of legal document or quasi-legal document.”
He suggested the government wants to see more investment in projects that help lower greenhouse gas emissions, such as so-called blue hydrogen, which is produced from natural gas, or carbon capture and storage technology.
“BP and Shell and others know that our commitment to levelling up and decarbonisation mean that business investment needs to happen,” he said, referring to Johnson’s flagship policy to boost disadvantaged areas of the UK.
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