Darling considers windfall tax on energy firms

Alistair Darling, the Chancellor of the Exchequer, is considering imposing a windfall tax on the multi-billion pound profits of energy companies following the surge in oil and gas prices.

Support is growing among Labour MPs for the one-off tax to be levied this autumn and channelled back to pensioners and low-income families struggling to cope with the soaring cost of light and heat.

An all-party group of MPs said last week there was a "compelling rationale" for such a move, which is also backed by environmental groups.

Ministerial sources confirmed last night that Mr Darling was carefully examining the merits of a windfall tax, but stressed no decision had yet been taken.

Pressure for action grew after British Gas hit customers with an increase in their gas bills of up to 35 per cent. Its parent company, Centrica, revealed that executives will share a dividend of £250,000 after the company announced higher than expected profits of £992 million. BP also announced this week record profits of £6.8bn in the first half of this year.

Supporters of the move argue that substantial sums could be raised without dipping into Treasury coffers and be targeted at the most vulnerable ahead of winter. Ministers also believe that the measure would be popular with the public and could even help raise the Government from the depths of unpopularity.

But some Treasury officials are warning that the move would carry great risks, as the energy giants could pass the tax on to consumers in the form of still higher bills. They also fear that the companies could simply move abroad arguing that the British tax regime threatened their prosperity.

Amid warnings that fuel bills could rocket by 40 per cent by the end of the year, industry experts urged consumers to save hundreds of pounds by taking advantage of the last remaining fixed and capped deals from the country's main energy suppliers.

Many of the cheapest products, which protect consumers from future energy price increases, have already been taken off the market as customers caught out by the year's second round of price hikes have taken up the offers in ever greater numbers.

The 15.9 million British Gas customers are among those now being urged to snap up the last remaining fixed and capped deals. However, two of the best fixed-price deals have already been withdrawn this week. Scottish Power's Fixed Price Energy deal, which fixed bills until the end of August next year, was withdrawn on Tuesday.

British Gas responded by removing its best fixed-rate deal, which froze prices at an average of £1,021.25 a year until the end of 2009, on Wednesday.

Only one capped deal remains. The "Price Protection" product from E.ON, which is available to new customers and to those switching from rival suppliers, caps gas and electricity prices at their current level until October next year. Unlike in fixed deals, prices can also fall. With a further round of increases likely in January, industry watchers said that consumers now faced a mad scramble to take advantage of the remaining deals.

"This really is the last chance for households to avoid the energy price rises," said Mark Todd, a director at energyhelpline.com. "Consumers have to act within the next few days. By switching to a capped tariff today, we predict this could save a typical home £300-400 over the next year."

Last Friday, the French-owned supplier EDF Energy was the first to increase prices, adding 17 per cent to electricity and 22 per cent to gas bills.

Centrica was widely condemned by consumer groups and charities yesterday after British Gas's big rise in customers' bills. It also raised electricity prices by nine per cent, adding an extra £400 to the energy bill of households that receive both gas and electricity from the firm.

The parent company was criticised when it emerged that it would be giving its shareholders a £144.6m dividend payout, 16 per cent more than last year.

Charities fear that vulnerable customers could be facing a dangerous winter. Age Concern's director general, Gordon Lishman, said: "Millions of pensioners are growing understandably anxious... Yet there are millions of older people missing out on money benefits worth up to £5bn."