Energy companies could escape a windfall tax on their huge profits if they do more to help people struggling to pay their fuel bills.
Ministers will tell gas and electricity bosses that they want them to take further action to combat fuel poverty. Although they deny threatening a windfall tax, ministers say the firms' response to their call will be taken into account when they consider growing demands by Labour MPs for a one-off raid to fund measures to help poor families meet their bills.
Energy firms have already agreed to treble to £150m by 2011 the amount they spend on social programmes but the Treasury and Department for Business believe they should go further following a spate of price increases blamed on the soaring cost of oil. Companies could, for example, be doing more to help people to insulate their homes, they say.
The Government also wants Ofgem, the regulatory body, to adopt a tougher stance towards the industry after complaints by Labour backbenchers that it is reluctant to use its powers to intervene.
John Hutton, the Business Secretary, has asked Ofgem to ensure that energy company accounts are more transparent so consumers can judge more easily whether price rises are justified when they are making good profits. He also wants Ofgem, which is investigating claims that energy firms collude in raising charges, to take a more hands-on role on fuel poverty and helping householders to change energy suppliers.
Mr Hutton and the Chancellor Alistair Darling are cautious about imposing a windfall tax in case it results in higher prices in the long run by scaring off investors. But ministers acknowledge the strong political and public pressure over rocketing fuel bills and say all options including a special tax are under consideration."We are looking for the companies to do more," one government source said. "That could be the best solution."
Eighty Labour MPs have signed a petition backing a windfall tax, including about a dozen ministerial aides. Some would abandon their call if the energy firms did more to help the poor.
David Kidney, parliamentary private secretary to the Transport Minister, Rosie Winterton, has written to the Chancellor urging him to make tackling fuel poverty the centrepiece of his pre-Budget report this autumn. He said: "It may mean more public spending, But it doesn't necessarily mean a windfall tax – there are other ways of being able to provide the money for this energy action."
But Lindsay Hoyle, Labour MP for Chorley, said: "The only stick they [energy firms] will understand is a windfall tax. I have no problem with companies making profits. These are excessive profits, these are immoral profits. It isn't good enough and we have got to take action now."
David Porter, chief executive of the Association of Electricity Producers, warned: "A legalised raid on the company's bank accounts – that would be very unhelpful because it would scare off investors and also could make the cost of investment much higher and, in the end, that would end up on the customers' bills. Every £1m you take out of each company through this legalised raid is £1m they have to raise elsewhere."
Council leaders from all parties urged the Government to impose an annual levy on energy firms to fund a nationwide home insulation programme. The Local Government Association said the move would lift 500,000 people out of fuel poverty, reduce the energy bills of 10 million households by £200 and cut domestic carbon emissions by 20 per cent.
Facts on fuel poverty
* A household in fuel poverty is defined as one which needs to spend more than 10 per cent of its income to heat its home to an adequate standard of warmth.
* Energywatch, a consumer watchdog, says that 4.5 million households are "fuel-poor", a number that has doubled since 2004. It says that the average UK household gas bill has risen by 31 per cent this year and by 160 per cent since 2003 and electricity bills by 22 per cent and 96 per cent over the same period. It believes the recent rises will push the number of families in fuel poverty over the five million mark.
* The six largest energy companies (Centrica, EDF, EoN, Npower, Scottish & Southern, Scottish Power) will spend £100m this year, £125m in 2009-10 and £150m in 2010-11 on their social programmes. This could take up to 100,000 people out of fuel poverty.
* The Government estimates that its winter fuel payment for pensioners has removed a million households from fuel poverty. It has announced a payment of £50 for households with someone over 60 and £100 for households with someone over 80 this winter.
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