The energy industry has claimed that the public would bear the brunt of a windfall tax, giving warning that there was serious risk of bills going up.

Half of Britain's energy companies have already raised their bills twice this year and the remainder are set to follow suit before the autumn, taking average household bills just shy of £1,500 a year.

The industry said that a windfall tax would lead to more inflation-busting increases, with companies struggling to find money to invest in ageing power stations and networks.

“If you take money out of the companies and they have to find it somewhere else, then their investment costs will go up and customers will have to bear the brunt of that,” said David Porter, chief executive of the Association of Electricity Producers. “There is a serious risk that bills would go up.”

He added: “There has been no windfall. Many of the retail arms of power companies have struggled to make money and have held down their prices to customers, while wholesale prices have soared.”

Gordon Brown is under pressure to impose a new levy on energy company profits. Seventy Labour MPs, including three ministerial aides, have signed a petition calling for the tax and five other junior members of the Government have told The Times that they are backing the campaign.

Despite the calls, the Government remains divided over the issue, with opponents said to include Alistair Darling, the Chancellor, and John Hutton, the Business Secretary.

Instead, Mr Brown is said to be in favour of forcing energy companies to pay more for pollution permits issued under the European Union's carbon-trading scheme. This would raise only £500million, a fraction of what is needed, according to windfall tax campaigners.

Lindsay Hoyle, a Labour MP, told BBC Radio 4's The World at One said: “I have no problem with companies making profits. These are excessive profits, immoral profits. It isn't good enough and we've got to take action.”

The Local Government Association has also thrown its weight behind the campaign, saying that a windfall tax would be the most effective way of funding a national home insulation programme.

Town hall chiefs from all three main parties wrote to six Cabinet ministers, including Mr Darling and Mr Hutton, arguing that a levy would help to lift 500,000 people out of fuel poverty.

Energy companies claim that the tax would hamper their plans to improve their infrastructure and deter foreign investors.

A spokesman for npower, which supplies about five million households, said: “Last year we made just a whisker under £500 million in the UK. That doesn't buy even one new power station. It is our plan to spend more money than we earn in the UK for the next ten years. That is a big commitment and if there was a windfall tax that is the sort of commitment that would have to be re-evaluated.”

Mr Porter said: “Putting a tax on the electricity companies means they would lose money at a time when we need to spend £100billion on replacing old power stations over the next 11 years. Every pound taken from the companies would have to be raised by them elsewhere. In the credit crisis, that is difficult enough, but a raid on electricity companies' bank accounts would send out a very unfortunate signal to the world of investment.”

The big six energy retailers - British Gas, npower, E.ON, ScottishPower, Scottish & Southern and EDF Energy - are trying to ward off the threat of a windfall tax by offering to spend more money on schemes to reduce fuel poverty.

Earlier this year they agreed to spend an additional £225 million over three years to reduce fuel poverty, a term used to describe households that spend more than 10 per cent of their income on keeping warm.

Fresh talks are taking place before the winter and have been given new impetus by the sharp increases in bills of between 15 and 30 per cent that have been announced by three energy retailers in the last few weeks.

Garry Felgate, chief executive of the Energy Retail Association, which is leading the discussions, said: “We are currently working with government on solutions to help them reach their 2010 targets on fuel poverty.”

One industry insider said: “The signal we are getting from government is that they are not minded to impose a windfall tax per se of the sort that was brought in after the 1997 election.

“However, they could yet impose a mini-windfall tax, for example by making a retrospective charge on carbon emission permits that were given free to energy companies or by choosing to auction the remaining 3 per cent of carbon permits that they are allowed to release, under European Commission rules.”

Centrica, the owner of British Gas, said that auctioning the remaining carbon credits could raise an additional £600 million to tackle fuel poverty over the next three years. But companies that rely on coal-powered generators would oppose such a move.

Case Study

Charlotte Nunes, 34, is one of thousands of young professionals taken aback by the huge increase in the cost of heating the home or turning on the gas hob this year. Eight months pregnant with her first child, she realised that she had to find another deal to ease the pressure on the family budget.

In three weeks’ time she will leave work at her London consultancy, meaning that her husband, Tom, has to pay every bill as well as the mortgage on the couple’s new home in East Dulwich. After 18 months with Scottish Power, Ms Nunes decided to switch to a rival company and sign up to a capped product, which means that the price charged for gas and electricity is fixed until October 2009. The couple believe that they will save at least £120 a year but, more importantly, will be protected from any further increases in prices.

She says: “Gas and electricity was eating up more than 10 per cent of our income and we’ve got no choice other than to be a lot more careful than we have been in the past.”

She has some sympathy with the clamour for a windfall tax on the energy companies, despite their nsistence that they need to raise prices to cover the higher cost of securing new gas supplies.

“I have to say I do get a bit frustrated when I see the big profits announcements made by the energy companies,” she said.

“They seem to be making more and more money yet they don’t seem to be doing that much at all to help consumers get the best deal. Scottish Power didn’t tell me about how I could save money by going on a capped product or by going online.”

“Our bills are now capped until October 2009, hopefully by that point I’ll be earning again.”

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