Treasury officers have quietly launched a brand new “tremendous tax” to discourage power firm house owners from cashing out profitable contracts for fuel purchased upfront earlier than leaving their provide enterprise to go underneath.
The federal government shortly pushed via the brand new legal guidelines late final week to counter business considerations that Stephen Fitzpatrick, the founding father of Ovo Vitality, might use his nearly two-thirds stake within the firm to liquidate its long-term fuel contracts and exit the provision market with a hefty revenue.
Vitality business sources consider this loophole might have already been utilized by BP, which owned nearly 1 / 4 of Pure Planet before pulling the plug on the challenger brand last October. It’s understood to have offered the power it purchased upfront, utilizing the revenue to pay again loans to BP.
Below the federal government’s new super-levy, known as the general public curiosity enterprise safety tax, a 75% tax will likely be imposed on any future windfall that an power firm shareholder might hope to make by cashing out fuel contracts whereas leaving thousands and thousands with out a provider.
Most of the suppliers which have gone bust didn’t have long-term power contracts, often called hedges, in place. Nevertheless, people who did purchase fuel upfront, earlier than markets reached report highs final yr, have discovered the worth of the contracts has rocketed.
Ovo Vitality mentioned the brand new levy had its assist, and that it had “been clear for a while that motion was wanted” to assist defend households and taxpayers.
The Guardian understands that the tax was ushered in to dam any monetary incentive for power firm house owners to make a fortune off the loophole, and to supply a “security web” for family invoice payers and the general public purse that might in any other case should bail out clients left behind.
Shoppers in England, Scotland and Wales might already be on the hook for a total of £3.2bn to cowl the price of discovering a brand new provider for the two million households affected by the collapse of power suppliers because the begin of September, and for the additional 1.7 million clients of Bulb Vitality, who have been handed to a special administrator appointed to deal with the large-scale collapse.
Treasury paperwork mentioned there was “a possible danger” that some power suppliers and their shareholders would possibly monetise giant earnings on property reminiscent of hedges “for their very own profit, leaving the federal government and finally the broader public to be landed with the prices of making certain the continuity of provides of power to clients”.
“The federal government considers it unacceptable that, while customers throughout the UK face rising power payments, it might be potential for some corporations and their shareholders to take advantage of this case to the detriment of taxpayers and finish customers,” the paperwork added.
A spokesperson for Ovo Vitality mentioned: “We assist this, and different current bulletins meant to strengthen the resilience of the UK power retail market.”
Nevertheless, the corporate added that it was “nonetheless not clear on what – if something – the federal government will do to assist assist weak clients” forward of the looming hike to the UK’s power cap which is predicted subsequent week.
Vitality payments are anticipated to soar to nearly £2,000 a yr from April underneath the regulator’s power worth cap – up from a mean of £1,277 this winter – within the steepest invoice enhance because the cap was launched in 2019. The federal government has been in talks to melt the blow to households however no measures have been agreed.
“We hope this announcement is an indication of additional initiatives to return to resolve the present power disaster,” the Ovo spokesperson mentioned.