Outgoing prime minister Boris Johnson has ditched mooted plans to introduce a windfall tax on electricity generators.
The former chancellor Rishi Sunak had floated the prospect of slapping electricity firms with a tax similar to the energy profits levy on North Sea oil and gas operators.
A decision on whether to press ahead with the tax had been expected this week. Johnson’s spokesman Max Blain was asked on Monday whether the energy profits levy would be extended to electricity generators and he said: “We would not seek to make any new policies or major fiscal decisions. So there’s no plans to do that.
“We will continue to evaluate the scale of the profits and consider appropriate steps but there’s no plans to introduce or extend that to that group.”
The move sent shares in listed power companies shooting up. Shares in Drax, the operator of the eponymous North Yorkshire power station, rose 6%, while SSE rose 3% and the British Gas owner, Centrica, jumped 3%. All three suffered punishing sell-offs when it emerged in May that Sunak was considering extending the tax to generators.
Adam Berman, a deputy director at the trade body Energy UK, said: “A windfall tax on generators would deter, delay and raise the cost of the investment we need to reach both our domestic energy security and climate change targets.”
The SSE chief executive, Alistair Phillips-Davies, had said a windfall tax could hinder work on building up domestic energy supplies.
In May, Sunak announced the energy profits levy as part of a £15bn package of measures to tackle the cost of living crisis. He hoped to raise £5bn from the tax. A vote on the levy is expected to take place in parliament on Monday evening.
Before its introduction, the business secretary, Kwasi Kwarteng, wrote to energy companies in April to state the “need to accelerate and maximise domestic oil and gas production while we transition to clean homegrown energy” as the war in Ukraine put focus on fossil fuel supplies.
Oil companies including BP and Shell have warned that the levy could hit UK investment since Sunak’s announcement. The levy includes tax allowances for domestic investment.
The North Sea Transition Authority (NTSA), an independent agency overseen by the business department, has asked UK oil and gas operators to lay out their investment plans.
In a letter to companies, seen by the Guardian, the NSTA director of operations, Scott Robertson, said: “The NTSA would like to understand what plans you have to rise to the secretary of state’s challenge and what opportunities there are in your North Sea portfolio for accelerated investment and production both in the short and medium term.”
Robertson said it was “aware that you may be re-evaluating your business plans and joint venture operating programmes and budgets for 2023 in light of the recently announced energy profits levy”.
The authority has given companies until the end of the month to respond, identifying projects that can be accelerated now or in the next two years or “may no longer be able to progress in light of the energy profits levy”. It then plans to meet firms in August.
Separately on Monday, shareholders in National Grid waved through a £6.5m payday for its chief executive, John Pettigrew.
Pay campaigners had criticised the package, which was up £1.1m on a year earlier, arguing that consumers had little choice over where to receive their energy from, meaning the bumper pay packet was not justified. Consumers are also battling huge increases in their energy bills.
The shareholder advisory group Pirc urged investors to vote against the pay packet. However, only 5.5% of votes were cast against the remuneration report at the company’s AGM in London.
