Jeremy Hunt announced today that he will increase the windfall tax on oil and gas companies and extend it to power generating companies as he seeks to raise money to plug a huge hole in public finances.
The chancellor said the tax would rise to 35 percent from its current rate of 25 percent. It will also apply to electricity generators with a 45 percent levy from January 1.
This means wind farms off UK waters will pay a higher dividend tax than oil and gas rigs operating nearby.
Hunt hopes the taxes can raise around £14 billion for the treasury between them next year.
He told the House of Commons: “I have no objection to windfall taxation if it really relates to windfall profits arising from windfall increases in energy prices.”
“But any such tax would have to be temporary, not deter investment and recognize the cyclical nature of many energy companies.”
“Our energy market structure also yields a windfall for low-carbon electricity generation,” he added.
Soaring oil and gas prices in the wake of the Russian invasion of Ukraine have sent household energy bills to record levels, causing Britain’s worst living crisis in generations.
Today, Mr Hunt also announced an additional £6 billion investment in energy efficiency from 2025 to help meet a new ambition to reduce energy consumption from buildings and industry by 15% by 2030.
Jeremy Hunt said today that the windfall tax on oil and gas companies will increase to 35 per cent from its current rate of 25 per cent.
Hunt hopes the taxes can raise around £14 billion for the treasury between them next year
Many wind farms and gas-fired power plants have benefited from historically high energy prices.
Gas prices have gone up all over the world, and the price of electricity in Britain is largely determined by how expensive the gas is.
Most new wind farms across the UK are built under so-called Contracts for Difference – which give them a guaranteed price for each unit of electricity they produce.
But these generators are also forced to pay you nothing more than they get above this guaranteed price – thus, they haven’t earned any windfall from the recent price hike.
Speculation about a possible windfall tax has prompted warnings from renewable energy companies that investment in the sector could dry up as a result.
“Cheap, low-carbon, reliable energy should be at the heart of any modern economy,” Hunt said.
But Putin’s weaponization of international gas prices has helped raise the cost of our national energy consumption.
“This year we will spend an extra £150 billion on energy compared to pre-pandemic levels, the equivalent of paying the NHS a full second through our energy bills.”
He added, “In the long term, there is only one way to prevent ourselves from being at the mercy of global gas prices: energy independence with energy efficiency.
“Energy independence, so that neither Putin nor anyone else can use energy to blackmail us, and energy efficiency to reduce demand and climate impact as much as possible.”
After Mr Hunt’s announcement, wind farms in UK waters will pay a higher windfall tax than oil and gas rigs operating nearby.
It comes as SSE becomes the latest energy giant to see its profits swell as electricity prices soar, while its gas generation arm has turned a profit.
The company said its renewables arm had struggled to take advantage of higher electricity prices, but adjusted operating profit at SSE Thermal – part of the business that burns gas to generate electricity – nearly tripled to £100m in the six months to the end of September.
Combined with a larger boost to the gas storage arm, it helped push SSE’s overall operating profit to £716m, almost double what it was last year.
On a call with reporters, SSE chairman Alistair Phillips-Davies said windfall dividend tax can be fair and reasonable, but should not put off investors.
“As to levies, caps, and unexpected taxes, whatever that may be, if they are just and reasonable—good,” he said.
I think one of the things that we have to be careful about in the UK is that we have created an amazing environment in which investors can get involved.
“We have one of the best green investment markets in the world, we have created the largest market for offshore wind power in the world.
“It’s crucial that we don’t risk it, especially when all of this investment is going to deliver energy over the course of this decade and at much lower costs than we currently import.”
Adjusted operating profit actually fell 11 per cent, to just £22.5m as the company had to buy back some of its hedges at high prices.
It came as SSE became the latest energy giant to see its profits swell as electricity prices soared, while its gas generation arm made big.
SSE’s total operating profit was £716m, almost double that of last year
