Hunt unveils tax grab on low-carbon generation profits

Jeremy Hunt has unveiled a windfall profits tax on low-carbon generators, extended universal support for household energy bills and announced £6 billion of new investment in energy efficiency in the next Parliament.

In his Autumn Statement, issued on Thursday morning (17 November), the recently appointed chancellor of the exchequer announced a series of moves to address the energy crisis.

As well as increasing the existing Energy Profits Levy (EPL) on gas and oil from 25% to 35%, Hunt announced a 45% windfall tax on electricity sold above £75/MWh, which the Treasury said is approximately one-and-a-half times the average price over the last decade.

Combined with corporation tax, this will bring the cumulative rate on low-carbon generators’ earnings over £75/MWh to 70%.

The Treasury said the Electricity Generator Levy, which replaces the now abandoned Cost Plus Revenue Limit rushed through Parliament in late October, will leave low-carbon generators still able to write off their investments against corporation tax by deducting such spending from their profits.

And it said the new tax can be administered through the corporate tax system that companies are familiar with.

The Treasury said that the levy on low-carbon generation has been set at a higher level than the EPL for gas and oil because while the latter applies to all profits, the former only covers returns above the £75/MWh benchmark.

The new low-carbon generation tax will be limited to generators whose in-scope output exceeds 100GWh across a period and will only apply to extraordinary returns exceeding £10 million. It will not apply to electricity generated under Contracts for Difference.

It will take effect from 1 January and is due to run until 2027/28.

Investment allowances available under the EPL will be cut from 80% to 29% for all but decarbonisation expenditure in carbon emissions reducing technology, which will remain at the existing level.

In his speech outlining the Autumn statement, Hunt said the increased windfall taxes are expected to raise more than £14 billion between 2023 and 2028 and will help pay for the £55 billion of support being provided for household and business energy bills this winter.

The Energy Price Guarantee for all households, which was previously due to end in April, will be extended by 12 months but the cap it provides on typical energy bills will increase from £2,500 to £3,000.

Hunt said in his speech that with energy prices set to remain at elevated levels next year, this should equate to an average of £500 support for all households in 2023/24.

He said top-up help will be made available for more vulnerable households.

The eight million plus households on means-tested benefits will receive a cost-of-living payment of £900 in instalments, whilst pensioners and people on disability benefits will receive £300 and £150 respectively.

The chancellor also announced a further £6 billion of investment in energy efficiency following the next general election between 2025 and 2028 and set a new target of reducing final energy consumption from buildings and industry by 15% by 2030 when compared to 2021 levels. A new Energy Efficiency Taskforce will be established to achieve the target.

He also gave the long-awaited go-ahead for EDF’s Sizewell C nuclear project and said the contracts for the initial investment will be signed within the “coming weeks”.

Adding that business and energy state Grant Shapps will publish “shortly” further details on the government’s energy independence plans and the launch of the Energy Efficiency Taskforce, Hunt said: “Our commitment to the British people is, over time, to remove this single biggest driver of inflation and volatility facing British businesses and consumers.”

Meanwhile, in its latest economic and fiscal outlook, the Office for Budget Responsibility has revealed that the government’s bailout of energy suppler Bulb is now expected to cost taxpayers £6.5 billion, of which £4.6 billion was included in the chancellor’s Autumn statement.