UK preps new power to slap energy firms with windfall tax if prices jump

U.K. ministers will create a fast-action trigger giving them the power to impose new windfall taxes on energy companies if prices spike again in future.

The U.K. brought in a 25 percent “Energy Profits Levy”; last year as prices soared in the wake of Russia’s invasion of Ukraine. It’s set to run until March 2028.

But, tucked into one of the consultation responses released alongside this week’s Autumn Statement, the government said it would create a “new mechanism” to respond to shock energy price rises once the current windfall tax ends in March 2028. It insisted the use of such a mechanism would be optional.

The move tees up the prospect of further charges on energy companies, a potentially contentious move already unsettling some low-tax members of the governing Conservative Party.

The document says a “fair return” will be needed for Britain if prices rocket again, while also ensuring commensurate tax hikes happen “in a more predictable way, in order to not deter investment.” It added: “The introduction of such a mechanism should not be presupposed if prices rise.”

‘Unwelcome’

But Conservative MPs, including former Prime Minister Liz Truss, have already argued against the current windfall tax on energy firms over fears it could deter investment into Britain.

Jacob Rees-Mogg, who served as energy secretary in Truss’ short-lived administration, warned: “The government ought only to tax with proper Parliamentary scrutiny not by legerdemain (sleight of hand) so this is an unwelcome move.”

Former British Prime Minister Liz Truss | Pool photo by Daniel Leal via Getty Images

“It’s important the chancellor doesn’t undermine the case for long-term business investment in Britain,” another former Cabinet minister told POLITICO. “Everyone knows that Labour would hike taxes on business, so this government mustn’t do their work for them.”

Industry representatives also appeared surprised by the move, and pressed the government to flesh out its plan.

Francesca Bell, fiscal and investor relations manager at the trade association Offshore Energies UK, which represents oil and gas companies, said there was “so far no detail on what a potential mechanism could look like.”

“We look forward to continuing dialogue with policy makers on the outcome of the fiscal review,” Bell added.

The Department for Energy Security and Net Zero has been approached for comment.