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Fuel Poverty Looms For Many as UK Wavers on Windfall Tax Plan

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By Bill Lehane

(Bloomberg) —

A windfall tax on UK energy company profits would come with “costs,” a top Cabinet official said, highlighting divisions among Prime Minister Boris Johnson’s allies over steps that could ease the country’s cost-of-living crisis.

Nadhim Zahawi’s comments on Sunday came as the chief executive of a major UK energy supplier warned that millions of households risk falling into “energy poverty,” and a think-tank said lower-income families are bearing the brunt. 

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Chancellor Rishi Sunak favors a variable windfall tax that would charge different rates to energy companies — whose profits are soaring thanks to the jump in oil and gas prices — depending on how much the firms are prepared to invest in new energy capacity, the Sunday Times reported. 

Under the proposal, firms such as BP Plc and Shell Plc would face a lower tax rate if they promised to dramatically increase funding for new facilities, the report said.

Asked about the prospect of a variable windfall tax, Zahawi, the UK education secretary, told Sky News that the Cabinet would look at all of the options available to it.

“Investment has to be real, which I think is what [Sunak] will demand,” he said. The government would need “to see a roadmap of this investment,” Zahawi said. He said there was “no zero-cost option” available. 

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A growing list of Sunak’s colleagues have criticized the idea of a windfall tax, which is seen as potentially discouraging energy companies from investing in Britain. Northern Ireland Secretary Brandon Lewis and Health Secretary Sajid Javid both spoke out against the proposal this weekend, the fifth and sixth ministers to do so in the past week, the Sunday Telegraph reported. 

Business Secretary Kwasi Kwarteng, Foreign Secretary Liz Truss, Attorney General Suella Braverman and Brexit Opportunities Secretary Jacob Rees-Mogg are among those against the idea. A windfall tax may represent a victory for Labour if it goes ahead; the main UK opposition party has been pressing hard for the introduction of the levy. 

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Soaring energy bills are at the center of Britain’s worst bout of inflation in 40 years, which pushed consumer prices up by 9% in the year through April. 

Many households face “fuel poverty” after unprecedented increases in energy prices, Michael Lewis, E.ON UK’s chief executive officer, told the BBC. That means they spend more than 10% of their income on energy bills.

Lewis said as many as 40% of E.ON’s 8 million customers in the UK could descend into fuel poverty by October without substantial action by Johnson’s government. He called for payments to be increased for Universal Credit and the Warm Homes Discount Scheme. 

“It’s very, very difficult, particularly for people on benefits or very low income,” Lewis said. “Some people are at the edge. They simply cannot pay and that will get worse once prices go up again in October.” 

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October marks a key tipping point because prices are due to rise further when energy regulator Ofgem adjusts its cap on the energy bills for the second time this year. 

Soaring energy bills are already expanding the cost-of-living gap between Britain’s richest and poorest families to the widest level since records began in 2006, according to an analysis by the Resolution Foundation published on Sunday. 

Headline inflation for the poorest tenth of households is now 10.2% compared with 8.7% for richer households, according to the think tank’s analysis. 

“With rapidly rising food prices and soaring energy bills driving the recent inflation surge, low-income families are at the sharp end of this squeeze,” said Jack Leslie, senior economist at the foundation. 

©2022 Bloomberg L.P.

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