According to a report, the Chancellor will levy companies that have ‘excess returns in an effort to reduce the cost of living.
Jeremy Hunt is reportedly planning to tax electricity companies with a 40% windfall on their “excess return” in an attempt to finance measures to reduce the cost of living.
The chancellor is looking at imposing a tax on generators that generate more than a certain price per megawatt-hour. This has not been decided.
Hunt also plans to increase the windfall tax on North Sea oil-and-gas operators by raising it from 25% to 35%, and extending it for two years to 2028.
According to the Financial Times, these two windfall taxes will generate £45bn in six years depending on changes in energy prices. The North Sea windfall tax was expected to generate around £28bn in four years.
This move to limit the profits of electricity generators is a departure from Liz Truss, the former prime minister. She had planned to limit the revenues of nuclear and renewable power producers starting next year in accordance with the EU’s “revenue caps”.
For over six months, officials have been studying taxation options for electricity generators. They have made huge profits due to soaring electricity prices, linked to the rising wholesale price of natural gas. However, their costs have remained relatively stable.
The government has been working on plans to transfer companies on a voluntary basis into contracts for difference. This will limit their revenues and guarantee them a long-term source of income.
The generation industry is split over which scheme they prefer. According to industry sources, generators are increasingly indicating that a one-off tax on windfall income is preferable to uncertainty linked to volatile energy prices.
One energy executive stated that “the suggestion has been to suggest that the options are too complex and that a simple windfall tax would provide more certainty over future investments.”
Investors may be discouraged from supporting large-scale green energy projects by a tax on renewable businesses.
According to the energy generator SSE, a windfall tax could harm Britain’s progress in building up domestic electricity sources.
Hunt is expected present the harshened windfall tax in Thursday’s autumn statement. Hunt is likely to announce changes in the energy price guarantee. This guarantees that a household’s average bill will not exceed £2,500.
Hunt cut Truss’s two-year policy of reducing energy bills to six months in one of his first acts after becoming chancellor. Hunt is expected to continue protection for millions of low-income and vulnerable households.
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