Autumn Budget 2025: missed opportunity to boost investment in UK energy sector
Sheena McGuinness, Co-Head of Energy and Natural Resources at RSM UK, said: “Despite the pre-budget rumours of a reform to Energy Profits Levy (EPL), no changes were announced today. Waiting four years for reform to the windfall tax is unlikely to be well received by the industry. Whilst there is an early termination mechanism, it’s doubtful this will be triggered as it only applies if both oil and gas prices fall below the 2025-26 thresholds and natural gas prices are not expected to fall to this extent.
“The government revised the EPL forecasts downwards, in line with historical trends demonstrating the shrinking tax base and casting further doubt on the funding for GB Energy, upon which there was no update on the revised source of funding for the energy investment company. In July 2024, 75% of the £8.3bn capital was ear marked for GB Energy from the £1.2bn per annum forecast additional EPL revenues, when the 3% increase was announced.
“Waiting four years for reform is too late. The North Sea continues to be one of the least competitive places globally for energy production. The government acknowledges that the UK needs oil and gas for decades to come. As we transition to a renewables future, we need to adopt tax reform and a pragmatic approach to licensing to bridge the gap, otherwise imports will continue to rise as jobs, projects and investment move overseas.
“The reduction in writing down allowances (WDAs) could change behaviour within the renewables sector. Developers tend to favour claiming the WDA once tax paying rather than claiming full expensing, where a claim (and so capex spend analysis) is required in the year of acquisition. However, the reduction in the main rate of WDA from 18% to 14% could encourage even loss-making businesses to carry out a capital allowance review earlier in the project life cycle, so that they can claim full expensing rather than wait and claim WDAs now they are at a lower rate.”
She added: “Our energy transition won’t happen overnight, and our future energy policy needs to consider all aspects of the complex landscape to get it right. Embedding the right mix of power generation, infrastructure and skills to deliver on the promise of lower energy bills, high paid jobs while tackling the climate crisis, will all take time and investment. One key missing piece of the puzzle today was upgrading our infrastructure. Only 63% of domestic energy which could have been generated made it into the grid, with the remainder subject to a balancing mechanism. This includes curtailment payments where generators are paid not to produce clean energy because the grid can’t absorb it, which is counterproductive and costly.”