LONDON — The UK government has said it will use a windfall tax on oil and gas companies to help raise funds for direct payments to households, totaling around 15 billion pounds (about $19 billion), so alleviate the cost of living crisis in the country.
Rishi Sunak, the Chancellor of the Exchequer, announced the measures on Thursday as the government came under increasing pressure to help households cope with rapidly rising inflation and energy bills. Mr Sunak said energy companies had benefited from soaring global commodity prices, partly due to the war in Ukraine, and some of their soaring profits could be used to protect low-income households .
Oil and gas companies will have to pay a 25% tax on their “extraordinary” profits. The tax will be phased out as energy prices return to normal, Mr Sunak said, but will not last beyond 2025. It will generate £5bn over the next year, about a third of the cost of direct payments for households. , estimated the Treasury. The measure will include an investment allowance which will help companies reduce their tax if they reinvest their profits in Britain.
“The oil and gas sector is making extraordinary profits,” Sunak told parliament lawmakers. “Not as a result of recent changes in risk taking, innovation or efficiency, but as a result of soaring global commodity prices.”
“For this reason, I support the argument of taxing these profits fairly,” he added.
This month, Shell, the London-based energy giant, reported its biggest quarterly profit for the three months ending March of $9.1 billion, and BP announced its biggest ever. quarterly profit in a decade.
Both companies provided cautious responses to the new tax.
BP said it saw many opportunities to invest in Britain, but stressed Thursday’s announcement was not for a one-off tax, but rather a multi-year proposal. Amid growing calls for a windfall tax, BP said this month it would invest £18bn in UK energy by 2030.
“Naturally, we will now have to consider the impact of both the new levy and the tax relief on our North Sea investment plans,” BP said in a statement.
In March, Shell announced that it would invest up to £25 billion into the UK energy system over the next 10 years. After Mr Sunak’s announcement, the company said “a stable environment” was fundamental to its investment plans and that the new levy investment deduction was a “core principle”.
In the United States, a group of Democrats in Congress is pushing for a windfall tax on oil companies, denouncing plans by companies to spend billions to buy back their shares to increase their value.
Other countries have approved measures to force energy companies to shoulder some of the burden of high prices that would otherwise fall on households. Spain has extended its tax breaks on household energy bills and extended the business tax. This year, France has capped electricity price increases at 4%, which state power company EDF said would result in a loss of revenue of around 10 billion euros.
In Britain, the government has been accused of being slow to support low-income households amid rising food and energy prices, forcing people to make tough spending choices. Now the government appears to be trying to distract from illegal lockdown parties in Downing Street after a long-awaited report into the gatherings was released on Wednesday and dropped its resistance to an additional tax on oil and gas companies.
Britons are set to face one of the worst cuts to their disposable income in decades. Britain’s annual inflation rate jumped to 9% last month, the highest in 40 years, and is expected to peak above 10% later this year. Consumer confidence has plummeted. The central bank predicts that high inflation will limit consumer spending and warns that Britain is at risk of a recession.
“The high inflation that we are currently experiencing is causing acute distress to the people of this country,” Sunak said. “I know they’re worried, I know people are struggling.”
On Thursday, he outlined his plan to fix the problem, although payments won’t be sent out until later in the year. Each household will receive £400 (around $500) in October. In addition, more than eight million low-income households will receive £650, split into two payments in July and the autumn. Eight million more pensioners who are already getting help with their energy bills will get £300 towards the end of the year, and six million people on disability benefits will get a further £150 in September. Local councils will also pay £500million in October to support households.
Torsten Bell, the chief executive of the Resolution Foundation, which studies Britain’s living standards, said the measures were “an important and very welcome package of support” which targeted low-income households. Twice as much of the £15billion will go to half of low-income households as the top half, the organization felt.
In April, the cap on household energy bills rose by 54 per cent, bringing the amount 22 million households pay to around £2,000 a year. The government gave most households £150 off their bills in April and said it would cut another £200 in October, but that would have to be paid back over five years.
Energy bills are expected to rise in the fall. This week the head of Ofgem, the agency which sets the price cap, said the cap could rise by a further £800 in October.
On Thursday, Mr Sunak said he would scrap the repayment plan for October relief and double it to £400.
The government has come under pressure to provide more fiscal support to households since its last budget proposal two months ago, when Mr Sunak’s announcements disappointed economists and campaigners. Then he announced a modest cut in petrol and diesel taxes for a year and raised the income threshold that workers must meet before paying National Insurance, a general tax.
There are signs that high prices are starting to bite in Britain. Almost 90% of Britons said their cost of living had risen due to rising food, fuel and energy prices, and people reported efforts to reduce their energy use at the time. home and take fewer car trips, according to the Office for National Statistics. Other polls showed people cutting back on restaurant meals, takeout and non-essential foods.
Despite Thursday’s announcement, which should help the poorest third of households offset the shock of energy bills, “the outlook for the economy in the coming quarters remains bleak,” writes Amarjot Sidhu, economist at BNP Paribas, in a note to customers. Once adjusted for inflation, revenues will still be strained as businesses received no new support, he added.