Chancellor Rachel Reeves has announced a major increase to the windfall tax on low-carbon electricity producers, raising the rate from 45 per cent to 55 per cent as the Government seeks to protect households from rising energy costs.
The move comes amid renewed volatility in global gas markets following disruption to fossil fuel supplies linked to the US-Israeli conflict with Iran.
Treasury officials said the enhanced electricity generator levy is expected to raise additional funds to support consumers and businesses facing higher energy bills in the short term.
The levy was first introduced in 2022 and applies to surplus profits made by nuclear, biomass and renewable energy facilities built before 2017, when electricity prices surged after Russia’s invasion of Ukraine.
Ministers are also proposing that these so-called legacy clean energy producers move voluntarily onto fixed-price contracts aimed at shielding consumers from market fluctuations.
Government sources said such agreements would only go ahead where they provide clear value for bill payers.
The proposals form part of wider efforts to reduce the influence of gas prices on electricity costs, with gas currently setting wholesale prices around 60 per cent of the time despite accounting for a smaller share of generation.
Prime Minister Sir Keir Starmer said: "We need to get off the fossil fuel roller coaster. This will make energy bills more stable and take the pressure off family budgets."
Rachel Reeves increases windfall tax to 55 per cent on electricity generators to tackle rising UK energy bills
|GETTY
Ms Reeves said: "Hardworking British families and businesses should not bear the brunt of global gas price shocks while electricity generators are making exceptional profits."
Energy Secretary Ed Miliband outlined additional measures during a speech at a national growth debate in Westminster, where he pledged to "double down not back down" on the transition to clean energy.
Households that rely on heating oil and liquefied petroleum gas will receive increased support through an expanded boiler upgrade scheme, with grants rising to £9,000.
The Government also confirmed plans to accelerate energy efficiency improvements across social housing.
LATEST DEVELOPMENTS:
Schools and colleges across the country are set to receive solar panel installations as part of the wider package
| POOLMr Miliband said: "As we face the second fossil fuel shock in less than five years, the lesson for our country is clear: The era of fossil fuel security is over, and the era of clean energy security must come of age."
Simon Francis, coordinator of the End Fuel Poverty Coalition, welcomed the measures while calling for further action to support struggling households.
He said: "For too long, households and businesses have been paying electricity bills linked to and inflated by a gas market they have no control over.
"This is a structural failure in how our energy system is priced and it has cost households dearly."
Mr Francis described the policy as a "carrot and stick" approach, with energy generators encouraged to accept fixed-price contracts or face higher taxation.
However, he warned that millions of households are still facing bills around 90 per cent higher than before the energy crisis.
He said revenue generated from the increased levy should be directed towards those most at risk of fuel poverty.