December 2023
Dear Constituent,
Thank you for contacting me about windfall taxes.
It is only fair that companies that have made genuine windfall profits as a result of the fallout of the war in Ukraine contribute more to fund the Government’s cost-of-living support.
The Government introduced the Energy Profits Levy (EPL) from 26 May 2022 in response to sharp increases in oil and gas prices in the preceding year and to help fund cost-of-living support for UK households. It was initially levied as a 25 per cent surcharge on UK oil and gas profits, taking the combined headline tax rate for oil and gas companies operating in the UK and on the UK Continental Shelf to 65 per cent. On 1 January 2023, the EPL rose to 35 per cent and applies through to 31 March 2028.
The Chancellor has also introduced a levy on the profits of electricity generators. Currently, our energy prices are set by the wholesale price of gas. This means that generators of renewable energy, which have far lower production costs, have been making extraordinary windfalls. The 45 per cent levy on these low-carbon producers took effect on 1 January 2023.
On 9 June, the Government announced a new Energy Security Investment Mechanism (ESIM), which is designed to give the oil and gas sector certainty to raise capital and invest in new and existing projects. The Government has published a Technical Note and Summary of Responses from the EPL ESIM discussion note. In addition to restating that the EPL will end no later than 31 March 2028, these confirm that the EPL ESIM will be monitored monthly and that the price thresholds of the mechanism will be adjusted annually in line with the Consumer Price Index from April 2024.
I am aware of suggestions to extend the EPL or apply it retrospectively. Implementing the levy retrospectively would have risked introducing unprecedented instability, damaging investor and business confidence in the stability of the UK oil and gas fiscal regime. This would increase our reliance on importing energy from overseas and ultimately increase people’s energy bills.
Thank you again for taking the time to contact me.
Best wishes,
Angela Richardson MP
Member of Parliament for Guildford, Cranleigh and our villages