Offshore Renewables Face 45% Windfall Tax from January
Thanks to the new budget from Jeremy Hunt, the Energy Profits Levy will be increased from January next year in an attempt to prevent oil and gas giants from capitalising on the energy prices rapidly spiralling out of control. The windfall tax has been increased and extended. Initially at 25% and due to come to an end in 2025, it has now been increased to 35% and will run until March 2028. The levy also introduces a new 45% tax on offshore energy generation, which includes offshore wind.
The Energy Profits Levy was introduced to generate income from the profits involved with extracting oil and gas, not for refining it and selling it at petrol stations. Criticism has come from all sides, not just the energy companies working in and around the UK. While TotalEnergies has recently stated that it will reduce UK investment by a quarter next year as a result of this, others are worried that investment in other fields could also diminish.
Before the initial windfall tax, oil and gas companies were already paying a 40% tax on extraction. It’s currently sitting at 65%. From January, this will rise even further to 75%. The Treasury expects this to bring in £45 billion over the next five years, but with offshore companies displeased with this decision already, many will be looking to reduce their investment in the UK.
A clearer windfall tax that directly targets these exorbitant profits would be more beneficial and would help ease the minds of the public making tough decisions whether to ‘heat or heat’ because of a lack of income. What’s worse is the taxation on offshore wind while still allowing for a 90% tax relief for companies investing in fossil fuels. For every £1 million invested, £900,000 tax relief is received, which is ludicrous when we should be reducing our dependence on fossil fuels.
Offshore wind has not been benefitting from increased profits, but will now be hit with windfall taxation. Is this a message we want to be sending to the rest of the world? That the UK is not interested in becoming a leader in renewables? By having no levy on renewable energy, you can make investment in renewables more attractive and tax free to speed up its adoption.
Instead, we should focus on the good news. As TotalEnergies is reducing its investment next year, this will stop them from extracting more oil from new wells in the North Sea. Even though the company is the second biggest operator in offshore drilling, it is not expected to be one of the biggest investors in the next few years.
Ultimately, if we are to take our net zero pledge seriously, the government needs to change the way the system works. Instead of implementing levies on particular elements of business, tax excess profits directly. Instead of taxing renewable energy generation, which is already 9 times cheaper than gas, provide tax relief to it so we can force these oil and gas giants to become more sustainable. Without taking public ownership of these companies, we risk being at their whim and permit them to generate as much profit as they deem fit.