Hunt hits renewables with levy and boosts windfall tax in £30bn-plus tax hike
Jeremy Hunt has announced a massive £30bn-plus tax grab on domestic energy producers, as the Government pushes to raise revenues for household and business support packages.
The Chancellor unveiled a 10 percentage point hike to the Energy Profits Levy from 25 to 35 per cent at the Autumn Statement in the House of Commons today for, while also extending the windfall tax’s duration from 2025 to 2028.
This takes the North Sea oil and gas industry’s tax rate to 75 per cent, when combined with the 40 per cent special corporation tax rate – which will take effect from January next year.
He also introduced a new separate 45 per cent levy on electricity generators from January 2023 – bringing renewable projects into the Government’s toughened tax regime for the first time.
The Treasury predicts that the hiked windfall tax will raise a further £20bn over the next six years.
Meanwhile the Electricity Generator Levy will raise over £14bn over the same period – with £34bn in extra funds being raised from the tax hike.
Today’s measures take the overall haul from the windfall tax to £40bn, meaning £55bn will be raised from the Government’s intervention in the domestic energy sector.
Hunt said: “I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices. But any such tax should be temporary, not deter investment and recognise the cyclical nature of many energy businesses.”
The Chancellor also committed to maintaining 80 per cent investment relief for oil and gas operators – which provides a reduction of 91p in the pound – for companies that commit to developing projects in the North Sea.
Energy giants have been raking in record profits amid soaring oil and gas prices, with BP and Shell recently unveiling bumper third quarter earnings of £7.1bn and £8,1bn respectively.
This follows Russia’s invasion of Ukraine and a Kremlin-fuelled commodities boom amid a squeeze on European gas supplies, which has seen Brits face suffer record energy bills.
Even with the vast subsidies included in the Energy Price Guarantee, the average energy bill has risen to an eye-watering £2,500 per year this winter – with Cornwall Insight expecting wholesale costs to be historically elevated into 2024.
However, there are concerns the ramped up windfall tax could jeopardise North Sea investment, with the UK pushing to drive down bills over the long-term by ensuring domestic energy independence and supply security – reducing its reliance on overseas vendors.
This includes oil and gas development and exploration, as the Climate Change Committee, Westminster’s independent advisory group, predicts half of the UK’s energy requirements between now and 2050 will still be met by oil and gas, and as much as 64 per cent of UK energy needs between 2022 and 2037.
Investec and Stifel have both recently warned that if Hunt increased the windfall tax, it would exacerbate uncertainty and risk no future investment in the North Sea during the duration of the tax.
If no new projects are developed, the UK could be dependent on international resources for 70 per cent of its oil and 80 per cent of its gas needs, according to trade association Offshore Energies UK – as outlined in its economic report.
This has placed Hunt in a challenging position, as he looks to balance boosting support for households and shoring up the nation’s finances with the UK’s supply security.