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ISSN 2753-7757 (Online)

Energy industry ‘disappointed’ by increase in windfall tax, but reaction to other parts of UK Autumn Budget more positive

6/11/2024

News

UK Chancellor Rachel Reeves lifting budget box in Downing Street Photo: Lauren Hurley/DESNZ
UK Chancellor Rachel Reeves delivers the Autumn Budget 2024

Photo: Lauren Hurley/DESNZ

Announcing her Autumn Budget last week, UK Chancellor Rachel Reeves confirmed that oil and gas companies will contribute more as the Energy (Oil and Gas) Profits Levy (EPL; or 'windfall tax') rises from 35% to 38%. Alongside this, the government is removing the 29% investment allowance, and extending the levy until 31 March 2030. The government will retain the availability of 100% first year capital allowances within the EPL, and will consult in early 2025 on how the oil and gas tax regime should respond to price shocks once the EPL ends in 2030.

In response, David Whitehouse, CEO of trade association Offshore Energies UK, said: ‘With an increase in tax despite commodity prices at recent lows, there is no hiding that this is a difficult day for the sector. Oil and gas companies, our world class supply chain and our highly skilled people will support the energy transition. We will not be successful without them.’

 

Moray Barber, EY Senior Tax Partner and Aberdeen Office Managing Partner said: ‘Many in the energy sector will be disappointed not to see a different, more dynamic approach to maximising the energy sector transition. While the Energy Profits Levy (EPL) was intended to be a “windfall” tax, the new increased rate and further expansion to 2030 will have many wondering if it’s a tax that’s creeping in to stay. The change to allow First Year Allowances (FYA) without restriction will provide some cash flow benefits to temporarily soften the blow of the EPL increase and extension.’

 

As previously reported, funding of £125mn has been confirmed for Great British Energy, which will be headquartered in Aberdeen.

 

Reeves also confirmed that the UK’s clean energy sector will benefit from £3.9bn of funding in 2025–2026 for carbon capture, usage and storage (CCUS) Track-1 projects to decarbonise industry and highlighted contracts with 11 green hydrogen producers. The government has also confirmed funding for two electrolytic hydrogen production projects in Scotland (Cromarty and Whitelee), and two in Wales (Milford Haven and Bridgend), to support low-carbon hydrogen production.  

 

In response, Philip Silk, Development Director at Conrad Energy, commented: ‘There are lots of welcome measures in today’s Budget and it’s good to see that the government continues support for the development of green hydrogen. I wouldn’t say we’ve broken entirely new ground as there was a fair amount of reiterating previous commitments, but today’s Budget clearly keeps us on the path to decarbonisation.’

 

The government is also providing ‘significant support’ in 2025–2026 for UK fusion energy research, to build on the the country’s position as a global leader in sustainable nuclear energy. In addition, it is continuing funding for the development of Sizewell C – providing £2.7bn of funding through 2025–2026. The equity and debt raising process for this project will shortly move to its final stages and will conclude in the spring. As with other major multi-year commitments, a final investment decision on whether to proceed with the project will be taken at Phase 2 of the government’s Spending Review.

 

Reacting to the news, the Nuclear Industry Association said: ‘On a Budget Day when expensive fossil gas is making up 50% of the electricity mix, it's incredibly important that new nuclear projects are progressed at pace and scale so we can help meet the government's energy security and net zero ambitions and to get Britain building again.’

 

Meanwhile, hundreds of local energy schemes to help decarbonise the public estate will be delivered through the Public Sector Decarbonisation Scheme, with over £1bn of funding over three years.

 

Investment of more than £200mn was also pledged to install electric vehicle (EV) charging stations, including for local authorities, plus maintenance of tax incentives to buy EVs through first year rates of vehicle excise duty (VED) and company car tax regimes.  

 

In response, Asif Ghafoor, CEO of national EV charging network Be.EV, said: ‘We welcome the news about the maintenance of incentives for electric vehicles in company car tax which account for 40% of all vehicles on the road. This is the easiest and quickest way to accelerate the EV transition is to get companies and employees to switch to EVs en masse. The £2bn investment into the EV sector manufacturing is also welcome.’

 

Reeves also confirmed the first steps towards a Warm Homes Plan, committing an initial £3.4bn towards heat decarbonisation and household energy efficiency over the next three years. This includes £1.8bn to support fuel poverty schemes, helping over 225,000 households reduce their energy bills by over £200. The government will increase funding for the Boiler Upgrade Scheme in England and Wales this year and next, following the high demand for the scheme.

 

Commenting on the initiative, Christophe Williams, CEO of Naked Energy, said: ‘The Warm Homes Plan is a great scheme for the residential sector, but we need to be treating the commercial and industrial sector with the same amount of prominence. It’s baffling that we’re not seeing much policy on this front as its industry that demands the most heat, but is the hardest to decarbonise. Heat demand is something that takes up nearly 40% of the UK’s total emissions, so it’s critical to our climate goals that we tackle it.’

 

In response to the government’s ideas for planning reform and boosting planning capability within local authorities, the Independent Networks Association’s Executive Director Nicola Pitts said: ‘It’s good to see the government grasping the nettle to deliver the much-needed infrastructure the UK needs.’

 

The government is also providing funding to grow the heat pump manufacturing supply chains in the UK to support the plan.

 

Meanwhile, to support existing firms to decarbonise and grow, the government has also confirmed £163mn to continue the Industrial Energy Transformation Fund over 2025–2026 to 2027–2028.

 

In addition, the government plans to extend the Advanced Fuels Fund for a further year, to support the development and production of innovative advanced fuels to decarbonise aviation.

 

As already reported in New Energy World, the government has commissioned advice from NESO on delivery of its clean power by 2030 target and, using this, will publish its own more detailed Clean Power 2030 Action Plan in due course. The government also plans to respond to the Climate Change Committee’s Progress Report, publish an updated Carbon Budget Delivery Plan, and capitalise on UK clean energy strengths through a new Industrial Strategy.