The windfall tax has been extended and expanded, to cover electricity generators as well as oil and gas companies.
This was one of the key points announced as part of chancellor Jeremy Hunt’s Autumn Statement today (17 November), along with extending the Energy Price Guarantee, announcing funding for energy efficiency measures, confirming Sizewell C will go ahead and announcing the end to electric vehicles (EVs) being exempt from Vehicle Excise Duty.
The budget – which confirmed the UK was officially in a recession – was particularly energy focused, with high power prices driven by the global gas crisis citied as one of the biggest factors in the inflation rate hitting 11.1%.
As such, further support for efficiency and domestic generation were cited key to ensure the UK cannot be ‘blackmailed’ by ‘Putin or anyone else,” said Hunt.
“Over the long term, there is only one way to stop ourselves being at the mercy of international gas prices: energy independence combined with energy efficiency,” he added.
Windfall tax: Hunt rolls out 45% windfall tax for electricity generators
One of the biggest announcements within today’s budget was that there will be a windfall tax on electricity generators at a rate of 45% levied on “extraordinary returns from low-carbon UK electricity generation.”
It will cover aggregate revenue that generators make above £75/MWh. Generators whose in-scope generation output exceeds 100GWh annually will be subject to the levy, which will apply only when extraordinary revenues exceed £10 million.
This will come into force from 1 January 2023, and be legislated for in the Spring Finance Bill 2023.
The introduction follows widespread rumours in recent weeks that the chancellor was eying such a tax, a move that was roundly criticised by those in the renewables sector, who have argued it would be disproportionate and have a negative impact on investment in the sector.
It comes alongside an expansion and extension to the Energy Profits Levy – the oil and gas (O&G) windfall tax announced in May. This will be increased from 25% to 35% from 1 January 2023, and will now come to an end on 31 March 2028 as opposed to December 2025.
Additionally, the Investment Allowance will be reduced to 29% of investment expenditure, other than decarbonisation expenditure which will continue to qualify for the current 80% rate.
This Allowance has previously been condemned as a loophole by many in opposition parties and green organisations. At its previous rate, it allowed companies could save 91p for every £1 they invest. This nearly doubled the tax relief available, ensuring the more a company invests, the less tax they will pay.
It was further criticised after it emerged that Shell paid no windfall tax on its £8.2 billion (US$9.5 billion) profit in Q3 2022, and bp paid only a minimal amount on its £7.1 billion (US$8.2 billion) Q3 profit.
The increase in the Energy Profits Levy will be legislated in the Autumn Finance Bill 2022, apart from the changes to the decarbonisation expenditure, which will be legislated in the Spring Finance Bill 2023.
Collectively, these windfall taxes are expected to raise over £40 billion over the next six years, and as much as £14 billion next year alone, Hunt noted. This will be used to fund support measures for customers, such as the Energy Price Guarantee.
Energy Price Guarantee: Set at £3,000 till April 2024.
The Energy Price Guarantee will be extended for another year, Hunt confirmed today, but at a higher rate.
Originally announced in September by then Prime Minister Liz Truss, the Guarantee capped energy bills for those on a standard variable tariff, to 34.0p/kWh for electricity and 10.3p/kWh for gas, inclusive of VAT, from 1 October.
This meant that the average energy bills would be limited to £2,500 from October 2022 for two years.
Following Truss stepping down from her role, incoming chancellor Hunt announced that the support scheme would end in April 2023, with a review set to determine the most appropriate measures following on from that.
He has now announced that the scheme will continue until April 2024, increasing to £3,000. As prices are expected to remain high throughout the next year, this will equate to an average of £500 in support for households over 2023-24.
According to Cornwall Insight, without the Energy Price Guarantee a typical household could expect to pay £3,739 p/a from April 2023, based on a standing charge of £0.37 for electricity and £0.31 for gas, and a unit rate of £58.35 for electricity and £15.01 for gas.
In addition to the expansion of the Energy Price Guarantee, additional support payments will be made to help the most vulnerable with high bills. This includes an additional Cost of Living Payment of £900 for those on means-tested benefits, £300 to pensioner households and £150 to those on disability benefits.
Energy efficiency: £6 billion of support from 2025
As part of a new long-term commitment to improve energy efficiency, Hunt has announced a target of reducing the UK’s final energy consumption from buildings and industry by 15% by 2030 against 2021 levels.
To support this, he committed £6 billion worth of funding from 2025 to 2038, which will come in addition to the £6.6 billion already provided by government. This funding would mean a £28 billion saving on the basis of current power prices, or £450/household.
This follows calls for the measures to go further to reduce demand amid the energy crisis, helping to reduce reliance on the international gas market and increase energy security.
However, Reeves criticised the funding for not kicking in for three years. Responding to Hunt in the House of Commons she highlighted that insulation rates were 20 times lowers in 2021 than in 2010.
To support the rollout of the new funding and delivery energy efficiency across the economy, there will be a new Energy Efficiency Task Force. Further details of this are expected in due course.
New nuclear: Sizewell C gets the go-ahead
Hunt also announced further support for nuclear within the budget, in particular confirming that new nuclear plant Sizewell C will go ahead.
“I can today announce that the government will proceed with the new plant at Sizewell C,” said Hunt.
“Subject to final government approvals, the contracts for the initial investment will be signed with relevant parties, including EDF, in the coming weeks.
“This will create 10,000 highly skilled jobs and provide reliable, low-carbon, power to the equivalent of 6 million homes for over 50 years.”
The £700 million investment in the project represents the first state backing for a nuclear project in over 30 years.
Sizewell C took a step forwards in June when the government moved forwards with plans to implement a Regulated Asset Base (RAB) modelv. This is designed to provide projects with a regulated payment from electricity suppliers, designed to help large infrastructure projects such as nuclear.
There is currently only one new nuclear plant under construction in the UK, Hinkley Point C, with the vast majority of operating sites set to close within the next decade.
Along with this support for nuclear, the Autumn Statement included commitments to secure the UK’s energy security through the roll-out of cheap, clean renewables, including wind and solar, although there weren’t further details.
EV’s no longer exempt from Vehicle Excise Duty from 2025
The final key point for the energy sector within the Autumn Statement was the introduction of Vehicle Excise Duty (VED) for electric cars, vans and motorcycles from April 2025.
This is designed to ensure all motorists pay “a fairer tax contribution,” the Statement said.
Sales of EVs have continued to surge, with battery electric vehicle (BEV) registrations increasing by 23.4% year-on-year in October to 19,933.
New zero emission vehicles that are registered on or after 1 April 2025 will pay the lowest rate of VED, which is currently set at £165 per year. Those registered 1 April 2017 and 31 March 2025 will also pay the standard rate.
Zero and low emission cars registered between 1 March 2001 and 30 March 2017, currently in Band A will move to the Band B rate, will be charged £20 a year. Zero emission vans will be moved to the light goods vehicles rate, £290 a year for most vans currently. Rates for Alternative Fuel Vehicles and hybrids will also be equalized.
Additionally the Expensive Car Supplement – which applies to cars with a list price over £40,000 for five years – exemption for EVs will end in 2025, and will be charged at the same rate as other vehicles.