Gaping holes exist in the government’s Energy Generator Levy and reducing the R&D tax relief will stifle business investment.
As expected, the Chancellor confirmed his plan to increase the energy windfall tax from 25% to 35% in April 2023, A huge question mark remains over the benefits of introducing temporary taxes which are not in themselves going to have a significant impact on plugging the black hole but could have a significant and negative impact on investment and growth in the UK.
It was also expected that the Chancellor’s measures on energy profits would extend to cover non-fossil fuel energy providers through the introduction of the Electricity Generator Levy, however not all generators will be caught. The levy fails to include renewable energy projects developed under the incentivised contracts for different (CfD) arrangements. This means that renewables, such as windfarms that have been operating since 2014 will not be subject to any additional taxes on excess profits they are currently generating. Given that almost 25% (in 2020/2021) of UK household energy bills consist of government subsidies for renewables, one might ask whether the Electricity Generator Levy is poorly targeted. This is particularly so as a large proportion of the offshore wind farms that operate on the UK continental shelf are owned and operated by non-UK based multinationals who are benefiting from government subsidies.
The government bangs the drum regarding greater sector innovation but reducing the tax benefits of undertaking R&D in the UK is wholly counterproductive. It has little fiscal benefit in the short term and, coupled with the increase in corporation tax to 25% from 1 April next year, doesn’t send out the message that the is UK open for business and is a good place in which to invest.
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