Utility companies have avoided paying hundreds of millions of pounds in tax and should be forced to compensate taxpayers through a one-off levy, a Conservative MP has said.

Charlie Elphicke, a Tory backbencher, told MPs on Thursday that he believed water, electricity and gas companies could have denied the Treasury up to £1bn through complex and aggressive forms of tax avoidance.

Mr Elphicke said: “Hard working people do not have a choice in paying tax and facing rising bills. The tax avoidance by utility companies is unacceptable and the regulator should order a cut in bills, or there should be a windfall tax to restore fairness.”

He also called for Revenue & Customs to investigate the tax affairs of the entire industry, before recommending to ministers on how to restore fairness.

The Dover MP, a former tax lawyer, has studied how much tax has been paid by nine different utility companies. He told the Commons they had collectively made sales of £28bn, generating operating profits of £10bn, on which they had only paid £541m in tax.

He added that during the same time those companies had raised customers’ annual bills to the extent they were now paying on average £384 more than in 2010.

Mr Elphicke accused the companies of deliberately running high debt levels to claim interest rate relief on their balance sheets, and argued for a change in tax law so that debt is no longer favoured over equity.

Thames Water has recently come under fire for not paying corporation tax last year despite being the UK’s biggest water company by revenue, triggering Ofwat, the regulator to brand some industry tax practices as “ morally questionable”.

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