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Energy: Taxation

Question for Treasury

UIN 92054, tabled on 21 November 2022

To ask the Chancellor of the Exchequer, whether his Department have made an assessment of the potential revenue impacts of equalising the Investment Allowances for the Energy Profit Levy and the Energy Generator Levy.

Answered on

24 November 2022

The Energy Profits Levy (EPL) was introduced in May in response to sharp increases in oil and gas prices over the past year. At the Autumn Statement 2022, the Chancellor announced that the rate of the levy would rise by ten percentage points to 35 per cent, effective from 1 January 2023. The levy has also been extended until 31 March 2028.

The Electricity Generator Levy (EGL) will be introduced from 1 January 2023 as a new, temporary 45 per cent tax levied on extraordinary returns being realised from certain electricity generators in the UK. The EGL is charged on a different base to the EPL. The EPL is applied to total profits, whereas the EGL will only apply on the excess portion of returns above the £75/MWh benchmark price – well above historic levels.

Renewable generators will be able to deduct their investment costs from their taxable profits for the purposes of Corporation Tax.

New renewable generation will continue to be eligible for the government’s generous Contracts for Difference (CfD) scheme. Since 2014, the CfD scheme has enabled around 26GW of new low-carbon capacity, with generators receiving almost £6 billion net in price support to date. Electricity generators will also continue to be able to claim relief for their investments from the Corporation Tax they pay.

The Office for Budget Responsibility’s (OBR) forecast at Autumn Statement 2022 estimates revenues from EPL are expected to be £41.6 billion between 2022-23 and 2027-28. This is inclusive of the impact of the investment allowance, consistent with previous revenue projections for the levy. The OBR expect the Electricity Generator Levy to raise £14.22 billion over the same period.

Answered by

Named day
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