ELECTRICITY generators will need to hand over nearly half of all their profits to the Treasury as Jeremy Hunt extended the UK Government’s windfall tax in a bid to close his £55bn fiscal black hole. 

As expected, the Chancellor increased the rate of the Energy Profit Levy (EPL) for oil and gas companies from 25 per cent to 35%. He also brought in a new 45% tax for renewables, biomass and nuclear power generators.

The government said the two taxes would raise over £14bn next year. 

But the raid has infuriated energy firms, with Offshore Energies UK saying it effectively meant UK oil and gas production was being taxed at 75%, and could “drive investment out of the UK altogether.”

Meanwhile, Keith Anderson, the Chief Executive of Scottish Power said it would create a “five-year-long corridor of uncertainty for investors” in clean energy projects.

Announcing the hike in the Commons, Mr Hunt told MPs he had “no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices.” 

He said any such tax “should be temporary, not deter investment and recognise the cyclical nature of energy businesses”. 

The Chancellor added: “I have decided that from 1 January until March 2028 we will increase the energy profits levy from 25% to 35%. 

“The structure of our energy market also creates windfall profits for low-carbon electricity generation, so we have decided to introduce, from 1 January, a new, temporary 45% levy on electricity generators.”

The new Electricity Generator Levy (EGL) will be “levied on extraordinary returns from low-carbon UK electricity generation,” which, the Treasury says, will be on anything above £75 per megawatt hour (MWh).

The EGL is expected to raise £14.2bn by 2028, while the EPL will raise more than £40bn over the next six years. 

However, while oil and gas firms can claim back £91.40 of every £100 of profit by investing it there is no similar allowance for renewables. 

Mr Anderson said he was “deeply disappointed that renewables have been singled out”.

“It seems it’s a recession made by gas, but a recovery to be paid for by renewables. 

“Imposing this scheme to March 2028 creates a five-year-long corridor of uncertainty for investors – hitting the clean energy projects we need more of to wean us off gas dependency and decarbonise.

 “I do not understand why renewables are being taxed at similar levels to oil and gas and those businesses are being given added incentives to invest in even more fossil fuels.”

Deirdre Michie, Offshore Energies UK's chief executive, said it meant that around £80bn will be paid in tax by the oil and gas industry between now and 2028.

She said: “These tax changes will undermine one of the UK’s most important industries.

"The UK offshore industry generates jobs for 200,000 people plus billions of pounds in taxes.

"The oil and gas it produces buffers the nation against global shortages. These changes put all those benefits at risk.”

She added: “These are tough times for consumers. They are being hit by surging global energy prices caused by Putin’s invasion of Ukraine, and by the economic fallout from political failures in the UK.

“When people face such widespread hardship its right for all sectors to play their part.

"Our members are doing that. The UK’s offshore industry has contributed £400bn in taxes over the last five decades and was already due to pay about £15bn more this year.

“However, there is a balance to be struck. We remain proud to pay our taxes, but this latest increase means UK offshore operators will be paying a total rate of 75%.

"This rate is so high that it threatens to drive investment out of the UK altogether. “

Ryan Crighton, policy director at the Aberdeen and Grampian Chamber of Commerce, said: “It has become impossible to keep up with what this government wants from the energy sector.

“Does it want to increase energy security and accelerate the UK’s path to net zero? Or does it simply want to use the North Sea as a cash cow? Today’s £80bn tax raid sends a clear signal that it is the latter.”

Dan McGrail, CEO of trade body RenewableUK said the EGL would damage investment in “vital projects”.

“Any new tax should have focussed on large, unexpected windfalls right across the energy sector, instead profits at fossil fuel plants are inexplicably exempted from the levy.

"Many renewable generators are on long-term, fixed price contracts and most other sold their power for this winter over a year ago, so they haven’t been making excess profits.

“We need to attract more than £175bn in new wind farms and our supply chain over the course of this decade, so we need to make the UK one of the most attractive destinations for private investment in renewables.

"Ministers now need to work with the industry to ensure that the implementation of these plans ensures a level playing-field, rather than imposing unfair burdens on renewables.

Speaking to journalists shortly after the budget, Deputy First Minister John Swinney said he supported the increase in tax. 

“I am pleased the Chancellor has finally listened to our calls to tax more of the windfall gains in the energy sector, but he should have gone further to remove the poorly targeted investment allowance, which only serves to encourage short-term investment in fossil fuels rather than promoting long-term, sustainable energy solutions."