Jeremy Hunt, Britain’s Chancellor of the Exchequer, on Thursday announced he was hitting oil and gas giants with an increase in windfall tax after years of the Conservatives resisting calls to raise the levy.
From January 1 until March 2028, the energy profits levy will increase from 25 per cent to 35 per cent. Together with a 45 per cent tax on electricity generators, it will help raise an estimated £14 billion ($16.61 billion) next year.
The changes were unveiled as part of a raft of economic reforms laid out by Mr Hunt to MPs in the House of Commons in his autumn statement.
The Chancellor drew jeers, laughs and calls from the Labour benches to “say sorry” as he sought to repair the economic damage inflicted by his predecessor's disastrous mini-budget.
He said his plan, which included tens of billions of pounds of tax rises and spending cuts, would “rebuild our economy”, which is reeling from a cost-of-living crisis.
He said the UK was already in a recession.
Mr Hunt insisted he was not entirely against windfall taxes.
“I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices,” he said. “But any such tax should be temporary, not deter investment and recognise the cyclical nature of many energy businesses.
“The structure of our energy market also creates windfall profits for low-carbon electricity generation. So from January 1, we’ve decided to introduce a new temporary 45 per cent levy on electricity generators.”
Jeremy Hunt works on his autumn statement — in pictures
The introduction of the 45 per cent levy on electricity generators will not mean, as some had claimed, that wind farms will have to fork out more tax than oil and gas rigs.
Under the existing rules oil and gas firms are subject to a corporation tax of 30 per cent, and a supplementary tax of 10 per cent. On top of that there is the energy profits levy, which has been raised to 35 per cent. This takes the overall tax to 75 per cent.
The government has contracts for difference (CfD) with a range of low-carbon electricity generating companies, designed to provide firms with price certainty over the lifetime of the agreement.
This means that any renewable energy company — including a wind farm — that is engaged with the government under such a contract will be exempt from the 45 per cent tax.
Green Party MP Caroline Lucas welcomed the windfall tax but said maintaining an investment allowance for oil and gas companies was “scandalous”, as it gave “a massive subsidy to obscenely wealthy” companies in the sector.
Molly Scott Cato, the Green Party’s spokeswoman on finance, hit out at the Chancellor for being “silent on [Rishi] Sunak’s absurd loophole for oil and gas investment”.
“We need all investment in new oil and gas to end if we can possibly save our climate,” she wrote on Twitter.
Her tweet was in reference to the government’s policy which allows oil and gas giants to offset tax owed against spending on new investments. Environmental campaigners have repeatedly warned that such a system could encourage firms to pursue further fossil fuel projects.
Labour MP Richard Burgon accused Rishi Sunak's administration of saddling working Britons with the cost of economic reforms.
“While ordinary people are being made to pay for this crisis, the Tories are letting the oil and gas giants off the hook with massive loopholes in the Windfall Tax,” he tweeted.
Watched on from the gallery by his wife and young son, Mr Hunt announced a string of reforms which will affect the budget of millions of households across Britain.
He insisted the changes were necessary to help the UK make it through the global challenges exacerbated by Russia's invasion of Ukraine.
Under Tory leadership, he said the UK would “face into the storm” that he repeatedly linked to global pressures. “There may be a recession made in Russia but there is a recovery made in Britain — and we do so today with British resilience and British compassion,” he said.
He announced he will reduce the threshold for the 45p tax rate from £150,000 to £125,140. People earning £150,000 or more will pay slightly more than £1,200 more in taxes each year.
His plan will see the annual exempt amount for capital gains tax slashed from £12,300 to £6,000 in 2023. The following year it will be further lowered to £3,000.
He announced two new fiscal rules. The first will mean that underlying debt must fall as a percentage of GDP by the fifth year of a rolling five-year period. Secondly, public sector borrowing must be below 3 per cent of GDP over the same period.
Under his plan, tax as a percentage of the country’s gross domestic product will increase by slightly more than 1 per cent over the coming five years.
Turning to electric vehicles, he said greener cars would no longer be exempt from Vehicle Excise Duty from April 2025. The changes will beam that from January 1 to March 2028 the energy profits levy will jump from 25 per cent to 35 per cent.
Stamp duty cuts will stand until March 2025.
Amid a worsening cost-of-living emergency, the government’s priorities are to create stability, encourage economic growth and protect public services, he said. He fashioned his budget as the government’s way of “responding to an international crisis with British values”.
He vowed to protect the National Health Service, still suffering from the Covid-19 pandemic, and education.
He pledged the NHS would receive £3.3 billion annually over the next two years.
Rachel Reeves, the Shadow Chancellor, blamed the “chaos” which has in recent weeks engulfed the government for “the mess we are in”. She said the ruling party was also to blame for “12 years of Conservative economic failure”.
Mr Hunt was parachuted into 11 Downing Street after Liz Truss sacked Kwasi Kwarteng following his mini-budget which sent financial markets into a meltdown.
Mr Sunak reappointed Mr Hunt as Chancellor after he was sworn in as Prime Minister on October 25.