Hit energy giants with profit tax says John Major

John Major said action has to be taken over costly fuel bills. Picture: Getty

Sir John Major, the former Conservative prime minister, said it would be “entirely reasonable” for the Treasury to impose a substantial levy on energy firms next year if the government has to step in this winter to help poor families who cannot afford to heat their homes.

The crisis in energy costs is likely to force people to make a choice between “keeping warm and eating”, which was not acceptable, Sir John said.

His intervention comes after three of the firms – British Gas, NPower and SSE – announced price rises of between 8.2 per cent and 10.2 per cent in the past week, pushing average annual bills close to £1,500.

Embarrasingly for Mr Cameron, Sir John, who was prime minister from 1990 to 1997, also declared that Labour leader Ed Miliband had his “head in the right place” with his planned price freeze, although Sir John stopped short of giving the policy outright support.

The intervention by the scrupulously loyal Tory grandee leaves Mr Cameron and Chancellor George Osborne now facing calls for action from all sides.

In response, Downing Street said it had “no plans” to back Sir John’s measure. His proposals prompted speculation that he was acting as an “outrider” for a faction within Whitehall, to force ministers into including a tax grab in the next Budget.

It also emerged yesterday that energy firms bosses are to appear before MPs to explain their price rises – which they largely blame on the rocketing cost of government environmental and social schemes, paid for via household bills.

After speaking to parliamentary journalists yesterday, Sir John said the recent round of price rises could not be justified.

He said: “At the moment I do not see how it can be in any way acceptable that with energy prices rising broadly 4 per cent in terms of costs, that the price to the consumer should rise by the 9-10 per cent we are hearing.

“There are a number of ideas. I think the suggestion made by Mr Miliband shows his head is in the right place, but I don’t think it is a workable proposition.

“But I do think that without some action, if we have a hard winter, then there are many people who are going to have to choose between keeping warm and eating, and I don’t think that is acceptable. So I think there is a very real chance this winter that the government will be forced by events to provide more assistance to people who are facing real difficulties.

“If that proves to be the case, then I think it would be entirely reasonable for the Chancellor to recoup that money back from the energy companies as a one-off, given the scale of those profits and the unjustified nature of the very high increases they have just proposed. It would be a one-off windfall tax imposed retrospectively if it is necessary for the Treasury to pay out large sums of money, which I fear may well be the case if we have a hard winter.”

Sir John’s proposal relates to cold weather payments which kick in for families when the temperature falls below a certain level for a prolonged period.

People on benefits are eligible for a £25 payment if temperatures drop below zero celsius for seven consecutive days. It could also apply to any increase in winter fuel payments which the government might choose to offer to pensioners this winter.

The comments were seized on by the Tories’ political opponents last night.

Ed Miliband tweeted: “Sir John Major makes Labour’s argument: David Cameron stands up for the energy companies, not hard-pressed families.”

And shadow Cabinet Office minister John Ashworth said it was “deeply embarrassing for David Cameron that a man famous for not wanting to criticise his successors would come out and say what everyone else is thinking”.

The energy firms’ bosses now face a grilling later this month in front of the Commons’ energy and climate change committee, whose members will ask them to explain and justify the rises.

Energy prices have already risen 24 per cent over the last four years, according to regulator Ofgem.

Mr Cameron’s spokesman said: “The Prime Minister’s view on this is that this is an interesting contribution. We have no plans for this. What the government is doing is legislating around forcing energy companies to put customers on their lowest tariffs and more competition in energy markets.”

Asked about Sir John’s concerns about people having to choose between eating and heating, the spokesman said: “There are a number of initiatives that the government has to support vulnerable people, such as the cold weather payments.”

Meanwhile, new rules came into force yesterday which ban energy firms from increasing prices for customers on fixed tariff deals.

Energy regulator Ofgem said providers would also be prevented from automatically rolling customers on to another fixed-term contract when their current one ends, which can tie them in with hefty fees and prevent them from seeking a better deal.

The rules, which form part of wider industry reforms to ensure suppliers treat consumers fairly, were drawn up after the watchdog found many providers were able to raise fixed contract prices.

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