Energy firms may have to pay windfall taxes

Business Secretary John Hutton said the Chancellor was "looking at" options including stinging energy firms with a one-off levy.

The move would be hugely popular with Labour MPs, millions of families struggling to pay their gas and electricity bills and motorists facing spiralling petrol and diesel prices.

Business chiefs have warned that a windfall tax could scare off investment in Britain's programme to build new nuclear, gas and coal power stations.

But gas and electricity "fat cats" have sparked outrage by announcing huge profits for their companies while raising prices. British Gas, Shell and BP have all recently announced large profits as the cost of petrol, diesel and household energy has soared.

Mr Hutton, who has voiced the business concerns, said: "It's a complicated set of issues. The Chancellor is looking at all of these options sensibly and fairly as he always does and he will come forward in due course with his proposals."

He stressed there were important considerations to "weigh up".

"We have got to encourage very significant investment into our power generation system over the next 10 to 15 years," he told BBC radio.

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

"The Chancellor has to make these calls. They are very difficult calls and he has my full support."

The Treasury, though, sought to downplay the likelihood of a windfall tax but did not rule it out.

A spokesman said: "Tax is a matter for the Chancellor and it's considered on a Budget by Budget basis."

However, Gordon Brown is being urged by despairing Labour backbenchers and ministers to gamble with "bold" policies to rescue his stricken premiership. The Government could justify the levy to help hundreds of thousands of households, including many pensioners, who could be forced to turn down the heating this winter.

Even senior Tories said there would be widespread support for a £300 million raid on the coffers of the energy giants to channel funds towards the fuel poor.

Peter Luff MP, who chairs the influential Commons business and enterprise committee, said: "The politics of that are really very attractive. It could be done."

But CBI chief Richard Lambert warned the UK will have to rebuild around a third of its power generating capacity. "Windfall taxes are almost always the wrong thing," he said.

British Gas bosses sparked fury yesterday when it emerged they are to share £250,000 after its parent company Centrica unveiled half-year profits of nearly £1 billion. Just 24 hours earlier, British Gas announced recordbreaking price rises of 35 per cent.