(Bloomberg) --
The UK announced a windfall tax on “excess” profits of some electricity generators to help pay for the continuation of a freeze on household energy bills.
A similar levy on oil and gas firms will rise to 35% from 25% as the government seeks to claw back cash from companies profiting from higher prices. Energy rates for consumers will be capped at a higher level from April, pushing up the average bill by 20% to £3,000, according to the budget laid out by Chancellor of the Exchequer Jeremy Hunt.
Surging energy prices are stoking inflation that could leave millions in debt and unable to pay their bills this winter. Help for households from April is less generous than promises made by former Prime Minister Liz Truss.
Hunt said his package will fill an estimated £55 billion ($65 billion) hole in the public finances. The two windfall taxes on the energy sector will raise £14 billion next year.
Renewable developers have warned that investment will be at risk if any windfall tax is too severe. Growth of offshore wind is critical to Britain being able to cut its dependence on imported gas for producing power. It will also help the nation reach its goals to slash carbon emissions in the coming years.
In order to address the risk of developers taking their capital to other markets like the US, the government will give them tax breaks if they reinvest profits into new clean energy projects.
“There’s only one way to stop ourselves from being at the mercy of international gas prices - energy independence combined with energy efficiency,” Hunt said.
Nuclear power will also be subject to a windfall tax. That comes as the government confirmed its support for Electricite de France SA’s Sizewell C project. The 3.2-gigawatt facility had been reported as being under review ahead of the budget.
As things stand the government will fund £700 million or 50% of the development costs alongside EDF (EPA:EDF). Once the project reaches financial close both sides will hold a 20% stake with private investors making up the rest, Julia Pyke, head of finance for Sizewell C, told a panel on lawmakers on Wednesday.
The government committed to new energy efficiency measures through funding that will bring down UK energy demand by 15% from industry and buildings by 2030, according to Hunt.
It will also start a campaign to encourage homes, businesses and public sector organizations to cut energy use. Truss had previously blocked a similar proposal from going ahead.