UK’s green industrial revolution stalls amid declining annual fuel duty revenues

Today’s HMRC monthly tax receipts show fuel duty receipts for April 2024 to May 2025 are £4.1bn, which is £0.1bn higher than the same period last year. However, on an annual basis, between 2024 to 2025, the overall slight fall was primarily driven by a decline in diesel receipts due to a shift away from diesel towards electric and hybrid vehicles.

In addition, the Energy Profits Levy revenues in May 2025 were not included in today’s tax receipts for the second consecutive month. It is expected these will continue the broadly downward trend since the windfall tax was introduced in 2022.

Sheena McGuinness, Co-Head of Energy and Natural Resources at RSM UK, said: “Despite the government’s claims that the UK is on the brink of a “green industrial revolution”, but the annual fall in fuel duty revenues continues to cast doubt on the government’s energy strategy and its commitment to achieving net zero. With declining revenues and £2.5bn from GB Energy funding now earmarked to develop small modular reactors through Great British Nuclear, the government’s ambition for GB Energy to invest in renewables and drive impact in the UK’s energy transition is becoming increasingly unviable.

“The government has also announced a £14.2bn investment in the Sizewell C nuclear power station, in a bid to boost clean energy supply, create thousands of jobs, and cut bills for consumers.

However, the increase in favour of nuclear energy appears to be a U-turn from the renewables pledges that were made a year ago, potentially because of the backlash after the Spanish grid blackouts which saw the intermittency of renewables cited as a possible cause.

“While the transition to net zero won’t happen overnight, the shift in funding suggests a move away from immediate clean energy solutions, especially as the declining EPL tax take means there’s even less funding available for renewables and grid infrastructure. In the short term, the risk is that the UK continues to rely on energy imports, and remains exposed to volatility; and therefore loses out in the longer term from capital migration overseas towards more favourable renewables projects.”

“The declining tax revenues are also released amid speculation that the government will restart the approval process for North Sea oil fields following a long-running saga that has led to a hiatus in drilling following legal challenges. Pending the outcome of the decision, this could lead to approval for other such developments, an uptick in oil and gas production, and therefore EPL revenues, delivers more evidence of a potential retreat from renewables.”

She added: “With the Industrial Strategy expected next week, the clean energy sector needs to see tax policy and grid reform. Although the Infrastructure Strategy focuses on tackling connection delays, addressing supply chain challenges and supporting skills development, there is no mention of targeted tax incentives, which should be prioritised to unlock investment, strengthen energy security, and help position the UK as a global leader.”