Treasuryaccused of ‘whitewashing’ analysis of windfall tax on energy companies

TREASURY ministers have been accused of a “whitewash” over an official analysis claiming its windfall tax on oil and gas profits will not have a significant effect on the economy.

Energy firms said the impact assessment underplayed the risk of the tax hike discouraging “vital investment” in the UK, while one Tory MP claimed it had been written to “promote” the measure advocated by the Treasury.

The document was signed off by Lucy Frazer, the Financial Secretary to the Treasury, days after Rishi Sunak quit as chancellor.

The “energy profits levy”, which was announced by Mr Sunak in May, aims to raise revenue to help with the cost of living with a temporary 25 per cent tax on UK oil and gas companies.

It has increased the effective tax rate for the industry to 65 per cent and is expected to bring in about £5billion in its first year.

One government source admitted: “The major issue with windfall taxes is their unpredictable nature.

“Businesses want certainty and a windfall tax can make a difference between a project going ahead or not.”

But an impact assessment by HM Revenue and Customs for the Treasury last month suggests that the levy will not affect the economy because it has been coupled with a tax relief on new investments. The analysis states that while tax increases can “weigh” on the economy”, the “measure is structured to incentivise the affected companies to increase their investment”.

Craig Mackinlay, the chairman of the Net Zero Scrutiny Group of Tory MPs, claimed the windfall analysis was a “whitewash”.

“This is the trouble with the current orthodoxy of the Treasury,” he said.

“They don’t play a game of chess. They play a move at a time.”

A Treasury spokesman said: “The energy profits levy [helps] fund cost of living support for families facing significant increases in their energy bills.”