Boris Johnson puts on hold plans for windfall levy on UK electricity generators

Boris Johnson has put on hold government plans to impose a £3bn-4bn windfall levy on excess profits by electricity generators, arguing that any move would have to await the election of a new Conservative leader.

Former chancellor Rishi Sunak announced in May that he was examining “appropriate steps” to ensure the electricity generation sector contributed to a £15bn package of support for households hit by rising bills.

But Downing Street said on Monday that a windfall tax on the sector, similar to the one imposed on UK oil and gas producers, could not be implemented while a caretaker government was in place.

Johnson told the cabinet last week that, in line with convention, the government would not introduce new policies before he is replaced as Tory leader and prime minister, most likely in September.

Asked about a windfall tax on electricity generators, Johnson’s spokesman said: “We have no plans to do that, in line with convention. We will continue to evaluate the scale of the profits and consider appropriate steps.”

The spokesman added that such a move would count as “new policy”. Given that most Tory leadership contenders are vowing to cut taxes, including on business, it seems likely the policy will now be ditched.

Even Sunak, a leadership frontrunner, was cooling on the idea in recent weeks, arguing that excess profits might be better addressed by accelerating reforms in the electricity market.

Energy executives, who were summoned to the Treasury after Sunak announced in May that he intended to target electricity generators’ “extraordinary” profits, said officials very quickly realised the industry was too complex to apply a windfall tax, given each company owned different assets ranging from wind farms to nuclear plants and often sold their output in contrasting ways.

Companies including SSE and RWE, as well as investors, also pushed back against a windfall tax on the basis it would deter billions of pounds of investment needed in new domestic energy sources.

Meanwhile, Downing Street confirmed that other elements of agreed government business, including the controversial bill to rip up the Northern Ireland protocol, part of Johnson’s Brexit deal, would continue.

The bill will return for its committee stage on the floor of the House of Commons on Wednesday. The measure does, however, face substantial opposition in the House of Lords, where it could be seriously delayed.

Johnson and Nadhim Zahawi, his newly appointed chancellor, will also take a key decision on the economy before the summer recess, which starts on July 21, relating to public sector pay.

Downing Street said the cabinet had already agreed a policy of pay restraint before Johnson quit as Tory leader last week and that ministers would approve new pay deals this month.

Johnson’s spokesman said public sector pay review bodies, which make recommendations on pay awards, had concluded their work and the government would respond soon to provide certainty.

The expectation across Whitehall is that pay awards could average about 5 per cent, well below this autumn’s expected peak in inflation of 11 per cent, as ministers attempt to contain the rising cost of living.