(Bloomberg) -- UK Chancellor Jeremy Hunt is considering a new 40% windfall tax on the “excess returns” of electricity generators as part of his sprawling package of tax rises and spending cuts this week, according to a person familiar with the proposal.
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The tax will replace a plan by Prime Minister Rishi Sunak’s predecessor, Liz Truss, to instead cap the revenue of renewable and nuclear power producers from next year, the person said. The levy will be in addition to a current windfall tax on the profits of oil and gas firms, which is set to be extended to 2028 and increased from 25% to 35% as part of Thursday’s economic statement.
Hunt and Sunak are trying to fill an estimated £55 billion ($65 billion) hole in the public finances, with around 40% of the savings coming from tax rises and 60% from spending cuts. Sunak gave his strongest hint yet on Monday that he will keep the “triple lock” on UK state pensions, protecting them against the impact of soaring inflation.
The two windfall taxes on the energy sector are expected to raise more than £45 billion over six years, depending on future energy prices, according to the Financial Times, which first reported the plan. The levy on power generators will be applied to “excess returns” produced above a certain price per megawatt hour, the newspaper said.
Energy bills are set to rise for Brits from April, with Hunt likely to raise the government’s current price freeze at £2,500 for the average household to £3,100. Hunt is considering following the government’s current model of giving targeted payments to those on means-tested benefits, disability benefits and the state pension to cushion the blow, the person familiar said.
Hunt is also under strong pressure to raise state benefits in line with inflation. The Times reported that Hunt has agreed to do so and will also accept an official recommendation to increase the national living wage by nearly 10% to about £10.40 an hour.
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