UK imposes windfall tax on oil and gas giants due to rising energy bills

Sunak had previously rejected the idea of ​​a windfall tax, saying that while it seemed “superficially attractive”, it would ultimately discourage investment.

Leon Neal | Getty Images News | Getty Images

LONDON — Britain’s Finance Minister Rishi Sunak has imposed a windfall tax on oil and gas majors as the government scrambles to ease the country’s deepening cost-of-living crisis.

The measures come a day after a deeply embarrassing investigation into lockdown parties in Downing Street and amid sustained pressure on the ruling Conservative government to do more as soaring inflation drives up the prices for everything from food to fuel.

“The oil and gas sector is making extraordinary profits not as a result of recent changes in risk-taking, innovation or efficiency, but as a result of soaring global commodity prices due in part to the Russian war,” Sunak told House of Commons lawmakers. Thursday.

“And for that reason, I support the argument of taxing those benefits fairly,” Sunak said, drawing mockery from opposition lawmakers.

Sunak said the government was imposing a “temporary targeted energy profit tax” with a so-called “investment allowance” to incentivize oil and gas companies to reinvest profits. The new levy will be levied on the profits of oil and gas companies at a rate of 25%, before being phased out when commodity prices return to more normal levels.

The decision to impose a one-off tax on energy companies marks yet another U-turn for Prime Minister Boris Johnson’s government. Sunak previously rejected the one-off levy, saying that while it looked “superficially attractive”, it would ultimately deter investment.

Opposition lawmakers have repeatedly called on the government to impose a one-time tax on energy majors, saying the move would help fund a national household support package.

British oil and gas giants BP and Shell reported massive quarterly profits earlier this month as they benefited from soaring commodity prices during Russia’s assault on Ukraine. This has fueled calls for the government to tax its cash surpluses.

“Today it looks like the Chancellor has finally realized the problems the country is [is] face,” Rachel Reeves, shadow finance minister for the opposition Labor party, said in response to Sunak’s statement.

Reeves said Labor first called for a windfall tax on oil and gas companies nearly five months ago. And even when Sunak finally announced the single levy “he doesn’t dare to say the words”, adding that it is “the policy that doesn’t dare to say its name”.

“For months it has been clear that more is needed to help people lower their bills, so what took this government so long?” said Reeves. “This government’s dithering has cost our country dearly.”

What other measures have been announced?

Sunak said the surge in inflation was causing “acute distress” as the economic situation became more serious over the course of this year.

UK inflation jumped to 9% last month as food and energy prices soared to their highest annual rate in 40 years. The Bank of England expects inflation to top 10% later this year.

Sunak said around 8 million lowest-income households will receive a one-time cost-of-living payment of £650 ($819). The first payment will be issued directly to people’s bank accounts in July, with the second payment being sent in the fall.

The Finance Minister has announced that 8 million pensioner households will receive an additional winter fuel payment of £300 and a one-off disability cost of living payment of £150.

Sunak also said a £200 loan for energy bills no longer needed to be repaid and increased that household support to £400.

British oil and gas giants BP and Shell announced huge quarterly profits earlier this month.

Christian Buus | In pictures | Getty Images

The total cost-of-living measures announced on Thursday amounted to £15billion, Sunak said, bringing the total cost-of-living support provided this year to £37billion.

“Additional targeted support for the 8 million low-income people is the right approach and will help many people on the brink,” Miatta Fahnbulleh, CEO of the New Economics Foundation, said via Twitter.

“But a £650 one-off payment doesn’t begin to close the huge hole in social security that left these families so vulnerable to the #CostOfLivingCrisis.”

Paul Johnson, the director of the Institute for Fiscal Studies, described the measures as a “big, expensive package” from Sunak.

“Disappointing to hear the Chancellor again conclude by claiming to cut taxes. He absolutely isn’t. He’s raising them, and to historically high levels,” Johnson said via Twitter. “I think it’s the right thing to do. But his tax plan is to raise taxes and not, as he repeats, to lower them.”

“Nightmare Scenario”

Earlier this week, the head of UK energy regulator Ofgem warned that a price cap on energy tariffs most widely used by consumers was set to rise by £800 in October, raising the bill a typical household at £2,800 a year.

The proposed cap would represent a substantial jump from the current level of £1,971 which, when introduced last month, represented a record increase of £700.

“The price changes we have seen in the gas market are truly a unique event in a generation not seen since the oil crisis of the 1970s,” Ofgem CEO Jonathan Brearley told lawmakers on Tuesday during a a commercial, energy and industrial strategy committee. .

He added that the proposed price cap hike in October could see the number of fuel-poor households nearly double from 6.5 million to 12 million. Fuel poverty refers to when a household cannot afford to heat their home to an adequate temperature.

Campaigners have described the prospect of another energy bill hike this winter as a “nightmare scenario”, warning that only an emergency budget could solve the crisis gripping the world’s fifth-largest economy.

The End Fuel Poverty Coalition has estimated that if levels of fuel poverty reach projected limits, thousands of additional winter deaths will occur due to cold houses in 2022 and 2023, mostly among the elderly and vulnerable.

“The injustice of it all is just unbelievable,” said Brenda Boardman, senior fellow and low-carbon energy researcher at the University of Oxford’s Environmental Change Institute.

“We desperately need an energy market designed around the needs of consumers, not the needs of suppliers. This is, after all, a basic necessity, one that is ultimately about life or death, as well as the comfort, good health and development of the child.”

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