"Utility companies will be keen to hear more about George Osborne's plans to reform corporation tax, which are likely to focus on reductions in the headline rate of corporation tax, perhaps funded in part by reduced capital allowances. If this is implemented it would have a cash-flow impact on companies with high capital expenditure, for example utilities, and telecoms.

"If these changes are implemented, while the regulated utilities are likely to be able to eventually pass the cost of a higher tax bill on to their customers, there could be small, short term profit impacts depending on where companies are in their regulatory cycles. In contrast, power stations' cash-flow could be more directly hit by an increased tax bill, especially where recently built. It is unlikely that accounting profits would be affected, though, as spreading capital allowances over a longer period means that a higher deferred tax asset is recorded.

"Changes to the tax regime could reduce the UK's competitiveness in attracting new investment to the sector. Large global power companies may make investment decisions to build future build power stations elsewhere. It will be interesting to see in the Emergency Budget the extent to which the Chancellor will seek to give reassurance to the utilities industry that there will be much consultation over these changes and that they will take place over several years.

"The current coalition government has suggested while in opposition that there is too much incentive for financing companies through debt rather than equity. Capping the level of tax-deductible debt could have an impact on regulated utilities, which often have high levels of debt, reflecting the nature of their income and capital funding model. We expect that, should the Government be minded to consider limiting interest deductions generally, it will take specific account of the regulatory model in the utility sector."