The Confederation of British Industry (CBI) said the chancellor’s unexpected tax would be “harmful” to the UK’s net-zero plans and energy security.
The tax “sends the wrong signal to the entire sector at the wrong time,” said Ryan Newton-Smith, CBI’s chief economist, citing “the background of higher business taxes.”
Counsellor Rishi Sunak said Oil and gas companies will pay 25% tax on profits, which will be phased out when energy prices return to normal — but companies will get a 90% tax credit on any profits they invest. The funding will be used to help families with high energy bills.
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Oil and gas companies are targeted because they have enjoyed abundant profits as a result of high energy prices.
But Ms Newton-Smith said the government needed to work with companies on a “real” plan to increase investment and “get growth back up, particularly in areas like energy efficiency”.
“Despite the incentive to invest, the open nature of energy dividend levying – and the potential to bring electricity generation into its domain – will damage the investments needed for energy security and net zero ambitions,” she said.
Shell said the investment tax exemption is an “important principle of the new tax”.
“We have consistently emphasized the importance of a stable environment for long-term investment,” a company spokesperson said.
“This is central to our goal of investing between £20 billion and £25 billion in the UK in the next decade, mostly in low-carbon and zero-carbon products and services, with a significant amount also focused on ensuring the security of the UK’s energy supply.”
The windfall tax is the “vital thing to do to help families,” said Sam Alves, head of economics at climate research firm Green Alliance.
“It’s not the tax that’s going to hurt net zero, but it’s probably the investment allowance that comes with it,” he told Sky News.
“There is nothing to stop this investment from going into the volatile oil and gas that is largely responsible for increasing people’s energy bills.
“The chancellor should use tax breaks and public investment to rapidly expand the cheap and safe renewables we need to solve this crisis.”
The chancellor failed.
The Green Group also said Mr Sunak needed to go further to address the underlying issues that are fueling rising energy bills.
“Unless the shift from expensive gas to cheap renewables and energy efficient homes is accelerated, the government will constantly be forced to make emergency repairs,” said Sean Spires, CEO of Green Alliance.
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Ed Matthews, campaign manager at independent climate change research center E3G, agreed, saying: “The chancellor failed to fix the underlying crisis.”
He said the sudden income tax should have been used in part to improve home insulation, which would make homes warmer and reduce energy bills by up to 50%.
The UK has the worst isolated homes in Western Europe, but that cannot be fixed without more government funding, he said, adding: “We will all pay for this missed opportunity.”
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