FORMER Prime Minister Sir John Major’s call for a one-off windfall tax on energy firms’ profits was lambasted as “misguided” and unfair yesterday, as analysts and investors warned the levy would discourage investment and raise consumers’ bills.
Speaking at a lunch in Westminster, the former Conservative leader said recent price rises were unacceptable and suggested an emergency tax on profits to offset winter fuel subsidies that cost the government more than £2bn every year.
But critics argued that singling out energy firms was badly judged.
“If you’re saying a five per cent profit margin – which is the average margin energy suppliers are operating at – is excessive, then many companies across other sectors such as food and retail also warrant a windfall tax,” Angelos Anastasiou, utilities analyst at Whitman Howard, told City A.M.
“Political interference into the energy sector will deter investors and raise consumers’ bills.”
“Profits in our energy supply business rarely reach five per cent,” said SSE. “We have invested back into Great Britain and Ireland more than we made in profit for each of the last five years.”
James Smith, fund manager at Premier Asset Management, agreed. “A call for a windfall tax on energy profits is misguided on many fronts,” he said.
“Profits and investment always go together, and in the capital intensive utility sector, it is impossible for one to exist without the other.”
Scottish Power’s energy supply business posted a 4.5 per cent profit margin last year, E.ON’s was 2.3 per cent and Centrica’s 5.9 per cent, while EDF made a £62m loss on its residential business.
The government said last night that Major’s comments were “an interesting contribution” but that there were no plans for such a tax.
A parliamentary committee has invited bosses from the big six energy firms and smaller suppliers to give evidence on recent price rises next Tuesday.