Steep fall in windfall tax revenues threatens infrastructure funding

Today’s HMRC monthly tax receipts show Energy Profits Levy revenues fell from £1.067bn in October 2024 to £788m in January 2025, continuing the broadly downward trend since the windfall tax was introduced in 2022.

In addition, fuel duty receipts from April 2024 to January 2025 are £20.4bn, which is £0.3bn lower than the same period last year.

Sheena McGuinness, Co-Head of Energy and Natural Resources at RSM UK, said: “Windfall tax revenues maintain a steady downward trend, with the latest data showing a 26% drop on the previous quarter. This also reflects the shrinking profitability and capability for businesses to make investment decisions, which may lead to budget shortfalls, impacting the funding government has earmarked for public spending and infrastructure projects, including GB Energy. Given the Energy Profits Levy (EPL) has been extended to March 2030, with government also increasing the rate to 38%, the increased tax burden on businesses will continue to influence decision-making and create more caution in the energy market, with further revenue falls anticipated. 

“The shrinking tax base from the EPL casts doubts over the government’s source of funding for GB Energy and other measures included within its Green Prosperity Plan. The government stated that the extension and increase in the windfall tax (ie the incremental increase) would amount to £6bn over five years, but the latest figures again show a decline in tax revenues as opposed to the anticipated increase. Using the data from the public sector finances bulletin released by the Office of National Statistics on 19 July 2024, the revenue from this tax has been on a downward trajectory since its inception. Today’s data coupled with the historical trends support the concerns about the shrinking tax base and cast further doubt on the assertion of a £1.2bn per annum windfall tax increase.”

She added: “We’re also still waiting for clarity on how GB energy will help to stimulate clean energy generation and boost the UK economy by creating new skilled jobs and shore up our supply chain, which will help to address some of the challenges around long-term planning and investment. But, this shift won’t happen overnight, and it’s unlikely that we’ll see GB Energy outperform the private sector any time soon, so in the short term increased borrowing is likely to fund any shortfall, widening the budgetary deficit. Fuel duty receipts also fell £0.3bn, driven by a behavioural shift to hybrid and electric vehicles. Although this shows a positive change in consumer behaviour to support the energy transition, the reduction in revenue will further squeeze the government’s purse.

“The extension of the fuel duty rates will come to an end next month, so we do expect the Chancellor to increase it in the upcoming Spring Statement, to help address the budgetary deficit and reduce the reliance on public borrowing. However, the government needs to outline details of its policy towards driving clean energy in the industrial strategy, with focus on key energy sources, investment and tax incentives alongside the role of GB Energy to ensure long-term economic growth.”