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27 May 2022

Rishi Sunak’s UK windfall tax has un-greened a green idea

The Chancellor’s levy on energy companies will create more problems for the climate.

By India Bourke

Only the Tory party, with its love of unleashed big business, could have turned a solution to the climate crisis into an extension of the problem. For that is exactly what Chancellor Rishi Sunak‘s announcement yesterday (26 May) of a UK windfall tax on oil and gas companies appears to have done – breaking a historic Cop26 pledge not to incentivise further extraction.

Calls for such a tax have built momentum over recent months, as the war in Ukraine has pushed up energy prices – and profits – around the world. A proposal put forward by Labour carried the support of the Greens, SNP and Liberal Democrats, as well as some Conservative backbenchers (in addition to 63 per cent of the UK population, according to a new poll for the Green Alliance, an NGO). “A windfall tax on the obscene profits of energy giants” would put money “directly into the pockets of those who are struggling the most”, Green MP Caroline Lucas has advised.

Yet the tax actually announced by Sunak falls far short of the hoped-for green solution to the cost-of-living crisis. At best, it is a sticking plaster on a gaping wound. At worst, it will also pour petrol over the wound.

Referred to by Sunak as a “temporary targeted energy profits levy”, the tax will raise the existing rate on the sector from 40 per cent to 65 per cent of profits, for as long as energy prices stay abnormally high. But, crucially, it will also provide tax relief to companies that invest in further “UK extraction” – ie, more fossil fuels. There will be no tax relief for investment in renewables.

This means that, at a time when the International Energy Agency has warned that the exploitation of new oil and gas fields must stop immediately if the world is to stay within a safe limit of warming, the UK government has instead seen fit to support further extraction.

“It would be utterly scandalous if this windfall tax not only allows, but in fact incentivises, investment in yet more climate-wrecking fossil fuels as opposed to renewables,” Lucas said in a statement immediately responding to the Chancellor’s announcement, and later confirming that this was the case.

The tax is also hamstrung by its lack of ambition. “By only skimming the top 25 per cent off oil and gas company profits, Sunak has missed a huge opportunity to tackle the root cause of the cost-of-living crisis and the climate crisis together,” said Ami McCarthy, a political campaigner for Greenpeace UK. “Taxing the full profits at 70 per cent would have more than doubled the cash available,” she noted.

So what would a truly green response from Sunak have looked like? 

Experts and campaigners agree that improved home insulation is a golden snitch of an answer to the combined climate and cost-of-living challenges. Yet, as Lucas noted, support for local authority-led retrofitting was “shamefully absent” from the Chancellor’s proposals; while for Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit (ECIU), the lack of such a home insulation plan was a “glaring omission” that will keep consumers shackled to high energy bills for years to come.

Even more specifically, the campaigns director at think tank E3G, Ed Matthew, said the Chancellor should have announced £1.4bn more for energy efficiency support for vulnerable, low-income households over the next two years – funding it has already pledged in its manifesto, but has not yet delivered. “At end of the day a tax which takes money from fossil fuel companies, gives it to households who then have to give it back to fossil fuel companies is going wrong somewhere,” he said.

A truly green windfall tax would also have been accompanied by “green strings”, said the Green Alliance’s head of economy, Sam Alvis. “Ideally, the Chancellor would have limited the investment allowance to certain categories of investment, for example, in offshore wind or green hydrogen.”

In multiple ways, therefore, a policy that should have been the definition of an easy win – for people, planet and government – will likely prove to be anything but.

[See also: Greenpeace CEO John Sauven interview: “The most dangerous moment is now”]

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