United Kingdom

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The UK government has increased the windfall profits tax for North Sea oil and gas producers and extended it to low-carbon electricity generation companies as it seeks to close a gaping hole in public finances. UK Chancellor Jeremy Hunt raised the North Sea Energy Profits Levy by 10 percentage points to 35% from Jan. 1, 2023, and extended it until the end of March 2028. That lifts the marginal tax rate on the sector to 75%. The original windfall tax legislation included a sunset clause that would have ended the levy by 2025. The investment allowance for spending on new oil and gas extraction will be cut to 29%, while decarbonization expenditure will continue to qualify for the current allowance rate of 80%. Also as anticipated, the government imposed a temporary 45% levy from Jan. 1 on "extraordinary" profits reaped from low-carbon electricity generation. The levy will apply to revenue from power generation at an average price above £75/MWh. It will also be limited to companies that generate over 100 GWh and will only apply to extraordinary profits exceeding £10 million ($12 million). Hunt said these measures would raise a combined £14 billion in the next fiscal year.

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