Beginning in the new year, a windfall tax of 45 percent will be levied against renewable electricity generators in the United Kingdom. Today, in the Autumn Statement, Chancellor Jeremy Hunt announced the “temporary” measure that will be put into effect. According to what Hunt said in front of the UK parliament, “the structure of our energy market creates windfall profits for low-carbon electricity generation,” and because of this, “we’ve decided to introduce a new temporary levy of 45% on electricity generators beginning on January 1.”
It is anticipated that the measure, in conjunction with the Energy Profits Levy that was imposed earlier this year on oil and gas companies and increased today from 25% to 35%, will raise £14 billion for the Treasury the following year. According to what the Chancellor had to say about windfall taxes, “I have no objection to windfall taxes as long as they are truly about windfall profits caused by unexpected increases in energy prices.” Any such tax ought to be temporary, ought not to discourage investments, and ought to take into account the cyclical nature of energy businesses.
The move is one component of a larger package of financial interventions that were announced today. In that announcement, the Treasury detailed its plans to address the challenges facing the UK’s public finances by implementing a number of spending reductions and tax increases. The decision to impose a windfall tax represents a departure from the plans that the former Prime Minister Liz Truss had in place to limit the revenues of renewable producers beginning in the following year through a mechanism known as the Cost-Plus Revenue Limit.
Hunt stated that the energy sector will continue to be a “growth priority” for the Conservative government, despite the fact that earnings from renewable energy generators were targeted. “Over the long term, there’s only one way to stop ourselves from being at the mercy of international gas prices,” he added. “That way is to achieve energy independence while simultaneously increasing our energy efficiency.”
“Great Britain is already a world leader in the development of renewable energy, but we need to go even further with a major acceleration of homegrown technologies like offshore wind, CCS, and most of all nuclear.” He stated that the government has decided to move forward with the plans for the Sizewell C nuclear plant in Suffolk, but he did not mention any plans to support onshore wind or solar energy. A long-awaited initiative to increase energy efficiency in homes and businesses was also announced. The Department for Business, Energy, and Industrial Strategy is expected to provide further details regarding this scheme, as well as how the government will strengthen energy independence, in due course.