George Osborne has taken steps to close a tax loophole that allowed energy companies to avoid paying up to £900 million in tax.

The Treasury has introduced new legislation that will prevent businesses claiming capital allowances for costs met by other businesses. The new legislation is designed to prevent energy companies from making new claims for historic costs dating back decades that have already been paid by their business customers.

Commenting on the news the chancellor of the exchequer, George Osborne, said: “It is completely unacceptable that utility companies think they can claim for huge amounts of money, that business customers have already covered the cost for. By legislating today, we will prevent utility companies from making these claims, ensuring fairness for British taxpayers.”

He added: “New legislation confirms that these claims cannot now be made. HMRC will be robust in challenging those claims that have already been submitted.”

The new draft legislation will be introduced in the current Finance Bill and come into immediate effect.

The news follows concerns expressed by the energy and climate change committee that energy companies could be deceiving customers by claiming low domestic profits while recorded profits overseas rose.