The UK government is hiking a windfall tax on oil and gas companies and extending the levy to electricity generators, as it scrambles to balance its budget amid an economic downturn. It is also investing in nuclear power for the first time in decades.
UK finance minister Jeremy Hunt announced the measures on Thursday while delivering the government’s medium-term budget, which laid out plans for higher taxes and cuts to public spending.
Beginning January 1, the Energy Profits Levy on oil and gas companies will increase from 25% to 35% and remain in place until the end of March 2028. That takes the total tax on the sector to 75%, according to the Treasury.
There will also be a new, temporary 45% levy on the excess profits of electricity generators over this period. In the United Kingdom, electricity prices are tied to wholesale gas prices, which means many power generators are also enjoying mega 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 have been growing calls in Britain for higher taxes on the windfall profits of oil and gas companies, which have enjoyed record earnings this year thanks to rising prices driven by Russia’s invasion of Ukraine.
At the same time, households and businesses are being squeezed by decades-high inflation as a result of spiraling energy and food bills. The annual rate of UK inflation rose to 11.1% in October, its highest level in 41 years.
“I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases 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 United Kingdom will spend an additional £150 billion ($176.9 billion) on energy bills this year compared to pre-pandemic levels, according to Hunt. That’s the equivalent to paying for a second National Health Service.
Hunt on Thursday also extended government support for energy bills by another 12 months until April 2024, but said average households should expect to pay £3,000 ($3,451) annually, up from £2,500 ($2,951) currently.
As well as hiking energy taxes, Hunt affirmed a £700 million ($824 million) investment into Sizewell C, a nuclear power station operated by France’s EDF in the east of England.
The deal was first announced by former prime minister Boris Johnson last September and is the first state backing for a nuclear project in over 30 years.
It will provide power to the equivalent of six million homes for over 50 years and represents “the biggest step” in Britain’s “journey to energy independence,” Hunt said.
Hunt reaffirmed the United Kingdom’s commitment to a 68% reduction in carbon emissions by 2030. “Last year nearly 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.