The UK government is raising a windfall tax to oil and gas companies and extending the rate to electricity generators as it struggles to balance its budget amid an economic downturn. It is also investing in nuclear power for the first time in decades.
UK Chancellor of the Exchequer Jeremy Hunt announced the measures on Thursday as he presented the government’s medium-term budget, which outlined plans to raise taxes and cut public spending.
From January 1, the tax on energy profits of oil and gas companies will increase from 25% to 35% and will remain until the end of March 2028. This makes the total tax of the sector at 75%, according to the Treasury.
There will also be a new temporary levy of 45% on the excess profits of electricity generators during this period. In the UK, electricity prices are linked to wholesale gas prices, which means many power generators also enjoy huge profits.
Together, these measures will raise £14 billion ($16.5 billion) next year and more than £55 billion ($65 billion) between 2022 and 2028.
There has been growing demand in Britain to raise taxes on windfall profits for oil and gas companies, which have enjoyed record profits this year thanks to rising prices fueled by Ukraine’s invasion of Russia
At the same time, households and businesses are being squeezed by decades-high inflation as a result of spiraling energy and food bills. The UK’s annual inflation rate it rose to 11.1% in October, its highest level in 41 years.
“I have no objection to windfall taxes if they are really about windfalls caused by unexpected increases in energy prices,” Hunt told parliament on Thursday. “Any such tax should be temporary, not deter investment and recognize the cyclical nature of the energy business,” he added.
Britain will spend an extra 150 billion pounds ($176.9 billion) on energy bills this year compared to pre-pandemic levels, according to Hunt. This is the it is equivalent to paying for a second National Health Service.
Hunt on Thursday it also extended the government’s support for energy bills by another 12 months until April 2024, but said average households should expect to pay £3,000 ($3,451) a year, up from £2,500 ( $2,951) currently.
As well as raising energy taxes, Hunt announced a £700 million ($824 million) investment in Sizewell C, a nuclear power station operated by France’s EDF in eastern England.
The deal was first announced by former Prime Minister Boris Johnson last September and is the first state to back a nuclear project in more than 30 years.
It will provide electricity to the equivalent of six million homes for more than 50 years and represents “the biggest step” in the UK’s “journey to energy independence”, Mr Hunt said.
Hunt reaffirmed the UK’s commitment to a 68% reduction in carbon emissions by 2030. “Last year almost 40% of our electricity came from offshore wind, solar and other renewable sources” , he said.
He added that from April 2025 electric vehicle drivers will no longer be exempt from paying car taxes.