The windfall tax announced by the chancellor will be “damaging” for the UK’s net zero plans and energy security, the Confederation of British Industry has said.
Rain Newton-Smith, CBI chief economist, said the tax “sends the wrong signal to the whole sector at the wrong time”, pointing to a “backdrop of rising business taxation”.
Chancellor Rishi Sunak said oil and gas firms will pay a 25% levy on profits, which will be phased out when energy prices return to normal – but companies will get 90% in tax relief for any profits they invest. The funding will be used to help families with soaring energy bills.
Oil and gas companies are being targeted because they have enjoyed bumper profits as a result of soaring energy prices.
But Ms Newton-Smith said the government needs to work with businesses on a “genuine” plan to increase investment and “get growth going again, particularly in areas like energy efficiency”.
“Despite the investment incentive, the open-ended nature of the energy profits levy – and the potential to bring electricity generation into scope – will be damaging to investment needed for energy security and net zero ambitions,” she said.
Hannah Essex, co-executive director of the British Chambers of Commerce, said steps need to be taken to help businesses hit by higher bills, calling for a 5% reduction in VAT on businesses’ energy bills and an Emergency Budget.
If that does not happen, the costs facing businesses will likely be passed on to consumers and “quickly eat into the financial support announced today”, she said.
“If we can ease the pressure on businesses then they can keep a lid on the price rises,” she said.
“Firms will then have the breathing space they need to raise productivity and strengthen the economy.
“But a change of course is needed now. If the government does not act quickly then rising costs will put our economy in a stranglehold.”
‘The chancellor has failed’
Green groups were disappointed that Mr Sunak did not go further to address underlying issues fuelling growing energy bills.
Shaun Spiers, executive director at Green Alliance, said: “Unless the transition from expensive gas to cheap renewables and energy efficient homes is accelerated, the government will be continually forced into emergency fixes.”
Ed Matthew, campaign director at independent climate change think tank E3G, agreed, saying: “The chancellor has failed to fix the underlying crisis.”
He said the windfall tax should have been partly used to improve home insulation, which would make homes warmer and reduce energy bills by as much as 50%.
He said the UK has the worst insulated homes in western Europe but this cannot be fixed without more government funding, adding: “We will all pay the price for this missed opportunity.”