Windfall tax 'may see price controls loosened'

Professor Stephen Littlechild, the electricity regulator, signalled yesterday that he might be prepared to loosen price controls on power companies if they were hit by Labour's windfall tax on the privatised utilities.

He told MPs at a Commons Trade and Industry Select Committee hearing yesterday that he would not relax the price caps affecting different elements of the industry, but he could take the impact of the windfall tax into account when deciding the next set of price controls.

Recognising the intense pressure utility regulators are likely to face from their industries if Labour wins power, Professor Littlechild said: "When the time comes to review controls, companies will put forward a whole series of arguments and we have to see what we make of them. But that situation has not arisen yet."

Facing repeated probing from Conservative and Labour committee members, he said: "I cannot say what the implications would be because I cannot say what the companies would put to me. They'd have to persuade me that they could no longer finance their licence activities." Later Professor Littlechild confirmed ministers could veto his decisions.

The current set of price controls affecting the regional electricity companies' main distribution activities expires in 2000, while separate controls on their supply businesses, due to be opened to competition, will be renewed in 1998. The National Grid transmission network agreed a new price cap with the watchdog, Offer, which lasts from April until 2001.

The comments are one of the most explicit admissions yet by a regulator that the windfall tax, which the City believes could raise between pounds 5bn and pounds 10bn, could feed through to customer prices if the companies involved make a convincing case. Labour has consistently denied the tax would have any effect on consumers' bills, arguing that companies could absorb the cash demand by raising borrowing.

Professor Littlechild will face equally fierce pressure from consumer groups after a Labour victory, seeking to head off any claims by the utilities that they cannot afford the tax.

Yvonne Constance, national chairman of the Electricity Consumers' Committees which advises Offer, warned: "We do not think customers should be paying windfall tax. If there is to be windfall tax it is intended to come from those who have made the windfall and that is the shareholders or new owners. We would watch most closely to make sure not a single charge is made against customers."