Government to end tax scheme as part of energy company crackdown

Government announce plans as chancellor accuses gas and electricity distributors of trying to game the tax system

Fresh attempts to crack down on alleged abuse by energy companies were underway last night with the UK government announcing plans to end a £900m "windfall" tax scheme, and a further inquiry into BP over possible fuel price fixing in Spain.

In the middle of a series of existing investigations into alleged petrol and gas price manipulation by regulators, the chancellor, George Osborne accused gas and electricity distributors of trying to game the tax system.

"It is completely unacceptable that utility companies think they can claim for huge amounts of money, that business customers have already covered the cost for. By legislating today, we will prevent utility companies from making these claims, ensuring fairness for British taxpayers."

The Exchequer claims that energy distributors have only recently started to try to claim "windfall" capital allowances for costs dating back decades. The draft legislation, introduced yesterday, will form part of the current Finance Bill but will be acted on by the tax authorities with immediate effect.

George Osborne believes, 'It is completely unacceptable that utility companies think they can claim for huge amounts of money'

It is only a matter of weeks since some of the big six companies such as RWE npower admitted to a House of Commons select committee that they had paid almost no tax and yet made huge profits from recent earnings. The energy companies claim that this is because they are investing billions of pounds on new power plants which can be legitimately "written off" against capital allowances.

But Osborne's move also coincided with Spanish competition authorities announcing they were investigating BP and two local firms, Repsol and Cepsa, for possible collusion in the raising of local fuel prices.

The local regulator, CNE, said it had been keeping a watch on the oil sector since witnessing a significant rise in power prices. The initial inquiry does not imply wrongdoing at this stage but if found guilty, BP and others could be fined 10% of total sales, CNE, explained. BP said it could not comment but is committed to helping the authorities with any inquiries.

The British oil company is already in the middle of a wider price manipulation investigation being undertaken by the European Commission through a series of dawn raids only two weeks ago.

The offices of two rival groups, Shell and Statoil of Norway, plus a price reporting agency, Platts, were also targeted by staff working for the competition authorities in Brussels.

The pressure on oil, gas and electricity companies has partly mounted over recent years as they have continued to make increasing profits through higher prices at a time when customers are being hit by recession.

But there is also increasing concern that the energy markets are not regulated toughly enough and are open to the kind of Libor- interest rate abuses for which the large banks have been fined hundreds of millions of pounds.

The gas and electricity market in Britain is dominated by big six companies such as Centrica, the owner of British Gas, SSE and Scottish Power many of which have been fined by the regulator, Ofgem, for mis-selling or other breaches of their license agreements.

Not all of the big six own the kind of distribution companies that have being tried to take advantage of the tax loophole being closed by the government. The Treasury declined to say which of them had been trying to claim extra allowances and some industry experts said they had been encouraged to do so by some of the big four accounting firms.

But the government was recently embarrassed when it was highlighted that the former head of RWE npower, Volker Beckers, since January was working as a non-executive director for HM Revenue and Customs.

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Article source : http://www.guardian.co.uk