Chancellor looks at windfall tax on firms

The Government confirmed today that it is considering a windfall tax on the multi-billion pound profits being made by the big fuel and energy companies.Business Secretary John Hutton said Chancellor Alistair Darling was looking at all the options following the outcry over what critics have described as the "grotesque" profits made by the companies on the back of soaring oil and gas prices.

BP and Shell have announced profits of more than £14 billion this week and yesterday Centrica weighed in with a profit of nearly £1 billion after announcing a staggering 35 per cent increase in gas bills.

Labour imposed a windfall tax on the utility companies in 1997 and now a similar move is being considered as Mr Darling tries to raise cash to help families hit by soaring food and fuel prices.

Mr Hutton is understood to oppose a one-off tax on the energy companies because he believes it would deter much-needed investment in the sector.

He said: "Tax policy is a matter for the Chancellor. We have got to weigh up some very important considerations.

"It's a complicated set of issues and the Chancellor is looking at all of these options sensibly and correctly as he always does and he will come forward in due course with his proposals."

Asked if there was a downside to a windfall tax, the Business Secretary replied: "We have got to encourage very significant investment into our power generation system over the next 10 to 15 years.

"We have got to have a fiscal and regulatory climate that encourages more of that investment because, quite simply, it will go elsewhere if there's not confidence in the UK market."

Mr Hutton said the Chancellor had to make some "very difficult calls", but Labour MPs like Rob Marris (Wolverhampton South West) and junior minister Ivan Lewis have urged the Prime Minister and Chancellor to act.

By London Editor John Hipwood