Daily Management Review

United Kingdom Imposes A Windfall Tax On Power Companies And Raises The Levy On Oil Firms


United Kingdom Imposes A Windfall Tax On Power Companies And Raises The Levy On Oil Firms
British Finance Minister Jeremy Hunt said on Thursday that the government would raise a windfall tax on oil and gas companies and extend it to power generation companies in order to plug a major hole in the government's finances.
Rising oil and gas prices in the aftermath of Russia's invasion of Ukraine have sent household energy bills to all-time highs, precipitating Britain's worst cost-of-living crisis in generations.
Hunt stated that the oil and gas levy would be increased from 25% to 35% and extended until the end of March 2028.
The windfall tax will be extended to electricity generators, with a 45% levy applied from January 1 to revenues deemed "extraordinary" by the government from low-carbon power generators such as wind and nuclear.
According to a treasury document, the two measures are expected to raise around 14 billion pounds for the fiscal year 2023/24.
Currently, the cost of producing electricity from gas-fired power plants is used to set the wholesale electricity price, which determines how much people pay for their energy.
This means that renewable and nuclear power generators can benefit from high wholesale prices.
According to Treasury documents, the 45% tax on low-carbon power generators would apply to revenue generated from power generation at a cost of more than 75 pounds per megawatt hour (MWh).
The increased windfall tax on oil and gas producers will go into effect on January 1.
According to Jefferies analysts, the extension of the tax's timeframe to 2028 from the end of 2025 was shorter than expected.
By 1344 GMT, shares in Harbour Energy, the largest North Sea producer, and newly listed Ithaca Energy were up 1% and 0.8%, respectively.
In response to the announcement, Shell stated that "the energy sector requires confidence that there will now be a stable investment climate following a period of considerable uncertainty."
Over the next ten years, Shell intends to invest up to 25 billion pounds ($29.5 billion) in Britain's offshore wind, low-carbon energy, and oil and gas production. Rival BP (BP.L) intends to invest 18 billion pounds in the United Kingdom by 2030.
The government announced that it will reduce its investment allowance plan for new oil and gas extraction spending to 29% of total investment expenditure.