Jeremy Hunt leaving Downing Street

Autumn Statement slaps taxes on EVs, fossil fuels and more

Image credit: reuters

Major tax changes for energy companies, fossil fuel providers and electric vehicles headlined an Autumn Statement today that will have significant impacts for many engineering and technology firms.

The chancellor Jeremy Hunt has increased the windfall tax on oil and gas giants from 25 to 35 per cent and given it a two-year extension, so that it will now run until March 2028.

A 45 per cent levy on low-carbon electricity generators has also been announced, which is estimated will raise £14bn next year.

While not reliant on generating energy from fossil fuels, low-carbon facilities such as nuclear power plants, windfarms, solar farms, hydro projects and biomass burners have nevertheless enjoyed bumper profits this year, with high wholesale gas prices pushing up the price of electricity generated from any source.

The announcement saw shares in SSE, which runs gas-fired power stations alongside hydroelectric plants and windfarms, drop by 3.75 per cent just one day after it reported a tripling of profits this quarter.

Centrica shares also dropped by 1.1 per cent, while Drax – which runs a large biomass power station in North Yorkshire – are down 3.9 per cent.

Hunt also announced an extra £6bn of investment in energy efficiency from 2025 to help meet a new ambition of reducing energy consumption from buildings and industry by 15 per cent by 2030.

This could save £28bn (at today’s prices) from the national energy bill or £450 off the average household bill, Hunt said.

Other changes include a removal of the exemption for electric vehicles from Vehicle Excise Duty from April 2025 which is designed to make the motoring tax system “fairer”.

In February, MPs on the Transport Committee warned that the government faces a major funding gap for road infrastructure if it does not develop a new motor tax for zero-emission vehicles.

With sales of second-hand electric cars soaring this year, the UK’s car market is expected to become increasingly less lucrative for the taxman as the technology reaches maturity.

While Hunt initially scrapped the mini-budget’s £2,500 cap on household energy prices when he assumed his new role last month, he has extended the energy price guarantee for an additional 12 months from April at a higher £3,000 cap.

There will also be further payments for help with energy bills for pensioners, for poorer households and for disabled people.

The Chancellor also doubled down on climate pledges and said the government remained committed to proceed with the new nuclear plant at Sizewell C despite rumours that the project was going to be delayed or axed as part of spending cuts.

“We remain fully committed to the historic Glasgow Climate Pact agreed at Cop26, including a 68 per cent reduction in our emissions by 2030,” Hunt said.

The building of new infrastructure such as roads, train lines and communities will be also be safeguarded with over £600bn in capital investment over the next five years.

While there were no new funding announcements for digital infrastructure projects, current funding levels are expected to be maintained.

Hunt used his Autumn Statement to set out an ambition to make the UK the “world’s next Silicon Valley”.

Hunt said he wanted to “combine our technology and science brilliance with our formidable financial services” and - now that the UK has left the EU - is planning to change EU regulations in “five growth industries: digital technology, life sciences, green industries, financial services and advanced manufacturing”.

In response to today’s announcements, Alex Taylor, head of policy at the IET, said: “As the chancellor correctly identified, skills for the modern economy underpins strong economic growth.

“New IET research shows that digital skills are among the most important. Among those engineering employers reporting a digital skills gap in their workforce, 49 per cent say it harms productivity and 35 per cent say it harms innovation.

“To be a science superpower, the UK needs to tackle the digital skills gaps that will inhibit innovation.

“A focus on energy independence and efficiency is welcome at this critical time for the UK, but we also need to consider the whole system. This means recognising the interdependencies of systems such as transport, healthcare, manufacturing and energy. Therefore, changes in the UK need to be overseen by a system architect that has oversight and accountability for net-zero to avoid unintended consequences. We need to consider new builds, alongside a large-scale drive to retrofit existing builds, which will increase the UK’s energy security, create jobs, and grow the economy.

“It’s very concerning that there will be road tax on electric vehicles (EVs) from 2025, as this sends the wrong message about commitments and incentives for net zero.

“The transition to EVs is critical in the long-term in helping reduce emissions from petrol and diesel engines. New IET research out this week has demonstrated a clear financial barrier to this being a straightforward process, amplified by the cost-of-living crisis. Government should be providing further support and incentives for EV uptake if they are serious about meeting their 2030 net zero goals.”

Dan McGrail, CEO of RenewableUK, warned that the windfall tax on electricity generators could “severely” deter investment in new renewable energy projects.

He said: “Unlike in oil and gas, under this levy companies which are making significant investments in renewables will get no tax relief and will be hit by a higher windfall rate.

"Any new tax should have focused 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 others 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.”

The Nuclear Industry Association (NIA) welcomed the government’s decision to proceed with the Sizewell C nuclear power plant.

“This is a huge moment for Sizewell C, for UK energy security and for the future of nuclear in Britain,” said the NIA’s chief executive, Tom Greatrex.

“Sizewell C will be one of the UK’s most important green infrastructure projects ever and critical to the government’s commitment to strengthen energy independence, cut gas use and bring down bills.

“The UK now needs to urgently get on with building new nuclear plants alongside renewables to meet the targets set out in the Energy Security Strategy and we look forward to Sizewell C contracts being signed in the next few weeks.

“This announcement also paves the way for the development of a pipeline of new nuclear projects, both large and small modular reactors, to deliver clean, reliable power for the British people.”

Commenting on Hunt’s statement, Greenpeace UK political campaigner Ami McCarthy said: “The chancellor may be making the right noises around home insulation and the windfall tax, but the action doesn’t live up to the hype.

“Increasing taxes on the obscene profits of oil and gas giants is the right thing to do, but allowing huge tax breaks for more fossil fuel drilling is one step forward and two back.

“The government could lose billions in revenues while turning a fairness tax into an incentive to fuel the climate crisis - and during a major climate summit! Instead of going to increase the problem, this money should fund solutions, including better support for millions of households still struggling to pay their bills.

“The chancellor also paid lip service to home insulation, but where’s the emergency plan we need to fix our draughty, energy-wasting houses? A promise of more money in three years’ time helps no one.

“The government should launch a nationwide warm homes programme now that can save households £10bn a year on energy bills and lift people out of fuel poverty. The sooner we get going, the sooner we’ll reap the rewards of more affordable bills, more energy security and more stable climate.”

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