A fresh split is emerging in Cabinet as ministers are divided over whether energy companies should face a windfall tax.
Just days after Rishi Sunak hinted oil and gas providers could face a tax on their bumper profits, Business Secretary Kwasi Kwarteng slapped down the idea.
The government is facing calls to impose a levy on leading energy companies, as BP and Shell are expected to unveil big payouts for shareholders this week.
Labour and the Lib Dems are both demanding a windfall tax on energy companies to help families struggling with the cost of living crisis.
However, Kwasi Kwarteng criticised the idea, despite the Chancellor not ruling out such a move.
Kwarteng told Sky’s Sophy Ridge on Sunday: “I’ve never been a supporter of windfall taxes, I’ve been very clear about that publicly. I think they discourage investment.”
He described such a tax as “arbitrary and unexpected” although he did refuse to rule out the government imposing one in future.
Pressed on whether the government had ruled out a windfall tax, Kwarteng told the BBC: “I am not going to be here on the programme ruling out what the Chancellor is going to do or isn’t going to do in an October budget. That is not my job.”
It comes after Sunak hinted at a possible U-turn on a tax on oil and gas providers, having repeatedly refused to consider the idea.
He suggested that he would consider a windfall tax on the industry if it failed to ramp up investment in new energy projects.
Speaking to Mumsnet, Sunak said he had not gone down the road of a windfall tax because he did not want to put off investment in new oil and gas extraction, highlighting a recent £25 billion investment by one company in the North Sea.
But he added: “What I would say is that if we don’t see that type of investment coming forward and companies are not going to make those investments in our country and energy security, then of course that’s something I would look at and nothing is ever off the table in these things.”
Kwarteng wrote to BP and Shell last week demanding a “very clear plan” from them within weeks to reinvest profits.
They are expected to present what is likely to be their best set of results for years while facing calls to cough up more in tax.
They are predicted to report a combined £10.5 billion in profit from the first three months of the financial year, a massive hike from the same time in 2021.
A lot of this will come from the cash households are paying to keep the lights on, heat their homes, and fill up their cars.