LONDON (Reuters) - Britain is considering taxing energy firms to help the country's poorest households cope with soaring gas and electricity bills, but utilities say the vote-winning project will damage investment in clean energy. Public anger has been mounting in recent weeks after five of Britain's six biggest energy suppliers hiked prices by an average of 15 percent, passing on rising wholesale costs.
By Pete Harrison
LONDON (Reuters) - Britain is considering taxing energy firms to help the country's poorest households cope with soaring gas and electricity bills, but utilities say the vote-winning project will damage investment in clean energy.
Public anger has been mounting in recent weeks after five of Britain's six biggest energy suppliers hiked prices by an average of 15 percent, passing on rising wholesale costs.
Each hike was met by a chorus of dissent from websites like http://www.uswitch.com, that make money by persuading households to switch suppliers.
!ADVERTISEMENT!Consumer discontent has been echoed in a string of negative media headlines.
But despite a 43 percent increase in household gas prices from 2006 to 2007, after supply problems sent wholesale prices spiraling upwards in early 2006, British consumers still got the cheapest gas among the 15 original European member states.
Power prices were the fifth cheapest at the start of last year, according to the latest European Union data.
After several investigations, Britain's energy watchdog Ofgem says it has seen no evidence the market if failing, but nevertheless has launched another probe, citing public pressure.
It has also suggested the industry stands to make 9 billion pounds of windfall profits from Europe's Emissions Trading Scheme and they should be clawed back to help the poor.
"The sad fact about the latest bout of public and media pressure is that... both the Treasury and Ofgem cracked," said Dieter Helm, an economist at the University of Oxford. "They have both behaved opportunistically."
"All of this has of course made Ofgem more popular, especially when combined with the recent large fine on National Grid, and generated great headlines for its leadership," he added.
In recent days, Britain's Treasury has summoned the chiefs of utility firms including Centrica, Scottish & Southern Energy and E.ON to discuss how they might contribute to a scheme to fight "fuel poverty."
Industry sources say the Treasury is considering several options, including a voucher scheme and the threat of a windfall tax if utilities do not cooperate.
Utilities are expecting a decision in time for next week's budget.
Tony Ward, director in Ernst & Young's utilities practice said the government would have to think very carefully about the consequences of imposing any levy or tax.
"To do so may impact on the much-needed investment in the UK, may appear to be re-introducing price regulation, and may do harm to the UK's longer term carbon emissions goals," he added.
Power firm Drax, which runs Britain's biggest coal-fired station, slammed government plans for a "shock tax" after a year in which its profits fell 16 percent.
Drax, whose massive plant in northern England is the country's biggest single source of carbon dioxide, is investing in ways to replace some of the coal it burns with plant biomass, to reduce its impact on the environment.
"A surprise or shock tax is very destabilizing for the industry when making long-term investments," said Drax Chief Executive Dorothy Thompson.
The standoff comes at a time when the government is asking the power firms to invest billions in nuclear power and build about 70 billion pounds of wind power to help it meet its emissions targets.
Any tax on profits could threaten those investments.
"It is vital we have a stable, predictable investment climate in the UK if we are to deliver the billions of pounds of funding needed into the cleaner, low-emitting power generation capacity that the government is strongly urging us to build," said a spokesman for British Gas owner Centrica.
"While all these technologies are low or virtually zero carbon, they are also very expensive, costing around three times as much as traditional gas-fired power generation."
(Editing by David Cowell)
