DTI presses for an end to 'unfair' tax on British Energy

Energy minister Brian Wilson is urging the Deputy Prime Minister John Prescott to give British Energy tax breaks worth £25m a year.

Whitehall sources said that Mr Wilson is worried that the nuclear generator is being unfairly disadvantaged by the local rates system and is pressing for its bill to be almost halved.

British Energy claimed that because it pays higher local taxes on its power stations than coal, wind and gas generators, its rivals are in effect receiving state aid through lower bills. The matter is being investigated by European Competition Commissioner Mario Monti, after a complaint was lodged earlier this year.

However, Mr Prescott's department, which has control over rating policy, is set to dig its heels in over the tax. A spokeswoman said: "Rates are a tax on property values. The high rateable value of modern nuclear power stations reflects their value as property, including the value of their reactors."

Modern nuclear power stations have a rateable value of £14,000 per megawatt of power generated. This compares to £9,500 for gas, £9,500 for coal and £5,000 for wind power.

British Energy has argued that because nuclear, gas and coal power stations are used to generate essential baseload electricity, then it is "illogical" to have different rates.

Its spokesman said: "Whilst we are pursuing the case, we would still much prefer to resolve this issue simply and quickly in the UK – and believe that with sufficient political will it is possible."

Privatised six years ago, British Energy has seen its finances hit hard by the sudden fall in wholesale electricity prices, brought on by the introduction of the new electricity trading market, Neta.

Companies such as London Electricity manage distribution and retail businesses as well as owning generators, and so can make up the losses resulting from the fall in prices through other parts of their operations. But as British Energy is almost totally focused on supply, it is more exposed to the price changes.