UK raises its windfall tax on energy companies and bets on nuclear power


London
CNN Business

The UK government is asking for a windfall tax on oil and gas companies and expanding the levy on electricity producers, 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 delivered the government’s medium-term budget, which outlined plans for higher taxes and cuts to public spending.

Starting January 1, the tax on energy profits of oil and gas companies will increase from 25% to 35% and will remain in force until the end of March 2028. That raises the total tax on the sector to 75%, according to the Ministry of Finance.

There will also be a new, temporary levy of 45% on the excess profits of electricity producers during this period. In the UK, electricity prices are linked to wholesale petrol prices, meaning many power generators are also enjoying mega profits.

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Together, these measures will raise £14 billion ($16.5 billion) next year and more than £55 billion ($65 billion) between 2022 and 2028.

Calls are growing in Britain for higher taxes on windfall profits for oil and gas companies, which have enjoyed record earnings this year thanks to rising prices fueled by Russia’s invasion of Ukraine.

At the same time, households and businesses are being squeezed by decades of high inflation as a result of spiraling energy and food bills. The annual rate of inflation in the UK rose to 11.1% in October, a 41-year high.

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“I have no objection to windfall taxes if they are genuine windfall profits caused by windfalls in energy prices,” Hunt said in parliament on Thursday. “Any such tax should be temporary, not deter investment and recognize the cyclical nature of energy businesses,” he added.

The UK will spend an extra 150 billion pounds ($176.9 billion) on energy bills this year compared to pre-pandemic levels, according to Hunt. That is equivalent to paying for a second National Health Service.

Hunting on Thursday it also extended the government’s support for energy bills for 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) in right now.

The UK's Sizewell B nuclear power plant, which is operated by France's EDF.  Sizewell C will be located in the same location.

As well as energy walking taxes, Hunt also confirmed a £700m ($824m) investment in Sizewell C, a nuclear power plant operated by France’s EDF in eastern England.

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The deal was first announced by former prime minister Boris Johnson last September and is the first government support for a nuclear project in more than 30 years.

It will power the equivalent of six million homes for more than 50 years and represents the “biggest step” in Britain’s “journey to energy independence”, Hunt said.

Hunt confirmed 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 renewables,” he said.

He added that from April 2025, drivers of electric vehicles will no longer be exempt from paying car taxes.

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