Britain raises unexpected tax on energy companies and bets on nuclear energy

CNN business

The UK government is raising a surprise tax owns oil and gas companies and extends the fee to power producers, as it tries to balance its budget in an economic downturn. It is also investing in nuclear power for the first time in decades.

British Chancellor of the Exchequer Jeremy Hunt announced the measures on Thursday as he delivered the government’s medium-term budget, which laid out plans for higher taxes and cuts in public spending.

As of January 1, the energy profit tax for oil and gas companies will rise from 25% to 35% and will remain until the end of March 2028. This will take the total tax on the sector to 75%, according to the Treasury.

There will also be a new, temporary 45% levy on the surplus profits of electricity producers during this period. In the UK, electricity prices are tied to the wholesale price of gas, which means many electricity producers also enjoy huge profits.

Together, these measures will raise 14 billion pounds ($16.5 billion) next year more than £55 billion ($65 billion) between 2022 and 2028.

In Britain, there have been growing calls for higher taxes on windfall profits for oil and gas companies, which have enjoyed record profits this year thanks to rising prices fueled by Russia’s invasion of Ukraine.

At the same time, households and businesses are being squeezed by decades of high inflation due to rising energy and food bills. Annual inflation in the UK rose to 11.1% in October, which is the highest value in 41 years.

“I have no objection to windfall taxes if they are really about windfall profits arising from windfalls in energy prices,” Hunt told parliament on Thursday. “Any such tax should be temporary, not deter investment and recognize the volatile nature of energy businesses,” he added.

Britain will spend an extra 150 billion pounds ($176.9 billion) on energy bills this year compared to pre-pandemic levels, according to Hunt. That is is equivalent to paying for other health services.

Fishing on Thursday also extended government support for energy bills for another 12 months until April 2024, but said the average household should expect to pay £3,000 ($3,451) annually, up from £2,500 ($2,951) now.

UK's Sizewell B nuclear power station, operated by France's EDF.  Sizewell C will be located in the same location.

As well as raising energy taxes, Hunt confirmed a £700m ($824m) investment in Sizewell C, a nuclear power plant run by France’s EDF in eastern England.

The deal was first announced by former Prime Minister Boris Johnson last September and is the first country to back a nuclear project in over 30 years.

It will power the equivalent of six million homes for over 50 years and is the “biggest step” in Britain’s “journey to energy independence,” Hunt said.

Hunt reiterated the UK’s commitment to reduce carbon emissions by 68% by 2030. “Last year almost 40% of our electricity came from wind, solar and other renewables,” he said.

He added that from April 2025, drivers of electric vehicles will no longer be exempt from paying vehicle taxes.

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