The UK government has announced a windfall tax on electricity generators, which would include renewable and nuclear generators, while annoucing plans to legislate on reforms of Solvency II, which could unlock more institutional capital for infrastructure.
Chancellor Jeremy Hunt announced the 45% levy on 鈥渓ow carbon electricity generators鈥� as part of a range of measures in today鈥檚 UK budget autumn statement.
The existing energy profits levy on North Sea oil and gas operators is also being raised from 25% to 35%, which combined is expected to raise 拢14bn (鈧�16bn) for the UK Treasury next year.
In a report released this week, EDHECinfra argued that investment in renewables was likely to become more risky and said that recent announcements 鈥渙n capping renewable profits show that renewables are not exempt from the type of intervention more commonly seen in the oil industry鈥�.
The report said: 鈥淪upportive regulation has been a cornerstone of the renewables鈥� success story and we argue that current market challenges cannot be solved by emergency fiscal measures.鈥�
Last summer, Daniel Hobson, investment director at GLIL and head of real assets at Greater Manchester Pension Fund, wrote in 91传媒在线: 鈥淚t is vital that the government sends the right signals to investors. Sadly, the very recent consideration of a blanket retrospective windfall tax on energy producers has significantly weakened the case for investment in the UK.鈥�
Hobson went on to say: 鈥淚nvestors prefer stability. They want to operate in a predictable and consistent regulatory, legal and fiscal framework. The mere suggestion that a retrospective tax on electricity generators is an option may be enough to deter pension funds from investing in UK energy.鈥�
Meanwhile, the government said it would legislate on proposed reforms of insurance company regulations, which are currently in line with the EU鈥檚 Solvency II rules.
Hunt said the reforms would 鈥渦nlock tens of billions of pounds of investment for our growth-enhancing industries鈥�, including infrastructure.
Amanda Blanc, group chief executive of Aviva, said: 鈥淭his is a very welcome boost for UK investment. We estimate reforms to Solvency II will allow Aviva to invest at least 拢25bn over the next 10 years across the UK, including in critical areas such as social housing, schools, hospitals and green energy projects.鈥�
Hannah Gurga, director general of the Association of British Insurers, said: 鈥淲e strongly welcome these changes to the Solvency II regime, which will allow the UK insurance and long-term savings sector to play an even greater role in supporting the levelling-up agenda and the transition to net zero.
鈥淢eaningful reform of the rules creates the potential for the industry to invest over 拢100bn in the next 10 years in productive finance, such as UK social infrastructure and green energy supply, whilst ensuring very high levels of protection for policyholders remain in place.鈥�
Andy Briggs, CEO of Phoenix Group, said: 鈥淭he proposed reforms to Solvency II announced today present a very significant opportunity to ensure more private-sector capital can be directed by insurers into the real economy and ensure we better mobilise the UK鈥檚 拢3.4trn of pension wealth.
鈥淭hese regulations are an important component of the changes needed to the wider UK investment landscape which will enable Phoenix to meet its ambition to invest more in the future.
鈥淧hoenix plans to invest 拢40-50bn in illiquid assets and sustainable investments over the next five years to support house building, green energy, and local communities across the country without compromising policyholder protection in any way.鈥�
The UK real estate investment industry has also been pushing for reforms to include changes to the way the volatility and risk of real estate are calculated.
The British Property Federation (BPF), Association of Real Estate Funds (AREF), European Association for Investors in Non-Listed Real Estate Vehicles (INREV) and the Investment Property Forum (IPF) submitted a joint response to the government鈥檚 consultation, arguing that their proposals would unlock more institutional capital to support its 鈥榣evelling-up鈥� and net-zero objectives.
The government also said it would continue to invest in the country鈥檚 infrastructure and proceed with a second round of its 鈥榣evelling-up fund鈥�, at least 鈥渕atching the 拢1.7bn value鈥� of round one.
Roger Clarke, the CEO of real estate stock exchange IPSX, said: 鈥淚t is absolutely right that the government should continue to prioritise improving Britain鈥檚 infrastructure, transport and quality of housing by levelling up the imbalance between London and the regions, and a recommitment to allocating 拢1.7bn to priority local infrastructure projects via the government鈥檚 levelling-up fund is welcome.
鈥淏ut public investment is only one piece of the puzzle; the private sector, and particularly the real estate industry, has an equally important role to play in supporting the regions鈥� growth by creating more opportunities for local development and regeneration.鈥�
