In addition to a potential increase in the oil and gas energy profits levy to 35 per cent over an extended period, it is increasingly likely that the UK will also introduce a new “excess returns” tax on energy generators more widely. This could apply a 40 per cent tax rate to profits earned on excess returns above a designated price per megawatt hour.
We are already seeing a destabilising impact on UK oil and gas investment arising from the potential energy profits levy increase, which raises concerns regarding the impact of a wider energy generation tax on future investment in the UK energy sector. The energy sector is an easy and popularist target for tax revenue generation, but short-term gain must be balanced against the need for long-term investment in the full spectrum of the UK energy sector.
In particular, the potential impact on renewable energy investment seems contrary to wider UK climate change and energy security commitments and it is hoped that any new tax is designed with continued incentives for the development of clean, long-term energy solutions in the UK.