MPs should not criticise use of laws they passed, says expert

Member of Parliament Ian Lavery said that he was "absolutely amazed" that RWE npower had not paid corporation tax for the last three years. Npower said that this was because it had invested billions of pounds in building power plants and was entitled to capital allowances in respect of that investment.

Heather Self, a tax expert at Pinsent Masons, the law firm behind Out-law .com said that MPs on the Committee had "shown a surprising lack of knowledge about the tax system, particularly as it relates to capital intensive industries." She said that it was inevitable that the amount of tax paid by each company would vary depending upon the nature of their business and the amount of investment made.

"What MPs seem to forget is that the rules these companies are using are precisely those introduced by Parliament to encourage business behaviour," Self said. "Capital allowances are offered as an incentive for investment in certain fixed assets, so companies which make significant investments in infrastructure will naturally reduce their tax bills by the allowances given."  

Self said: "It is ludicrous for MPs to seek to equate normal business behaviour, claiming allowances which have been specifically introduced by Parliament, with tax avoidance. As RWE themselves said, an informed debate is needed - it is a shame that this is not happening in Parliament."

The information on npower's corporation tax situation emerged when MPs on the Energy and Climate Change Committee questioned representatives from major energy companies on a range of issues, including points raised by members of the public via Twitter.

Ian Lavery said that at a time when energy companies had been making "obscene profits" and "millions of people were in fuel poverty" it had been suggested that of the six big energy companies, three were paying "significantly less corporation tax than would be expected" and one energy company had paid no corporation tax at all in the last three years.

Paul Massara, chief executive of RWE npower, said that npower had paid no corporation tax in the years 2009, 2010 and 2011. Massara explained that this was because npower had invested billions of pounds in building power plants and was entitled to capital allowances in respect of this investment.

Committee member John Robertson said to Massura that he was "glad I don't get my energy from you". He also accused the companies, and RWE npower in particular, of "using the rules to suit yourself".

"Our investment programme since 2008 has amounted to almost £3 billion, which means we have seen a large increase in tax relief," said npower in a statement. "This, combined with the losses in our retail business for 2009 and 2010, reduced our taxable profits to the point where we paid almost no corporation tax."

"This is in no way tax avoidance, and all of our business is taxable in the UK. We've not paid corporation tax because we've been investing hundreds of millions to keep the UK's lights on," the RWE npower press release said.