London May 26 2022: Britain announced a 25% windfall tax on oil and gas producers’ profits on Thursday, alongside a 15 billion pound ($18.9 billion) package of support for households struggling to meet soaring energy bills.
“The more a company invests, the less tax they will pay.”
Sunak did not refer to it as a windfall tax. He said it would raise 5 billion pounds ($6.30 billion) in the next 12 months and be phased out as oil and gas prices return to normal. He did not set out how the rest of the package would be funded.
He also said there would be a new Investment Allowance that would nearly double the tax relief available for firms on their investments.
On Tuesday the UK energy regulator said that a cap on gas and electricity bills was set to rise by another 40% in October, cause by a surge in global energy prices.
Other European governments have also ploughed tens of billions of euros into measures to help mitigate energy prices.
Shares in oil majors BP (BP.L) and Shell , which are global companies and so less affected by UK policy, touched session lows after the announcement, but recovered and were up more than 1%.
“We have consistently emphasized the importance of a stable environment for long-term investment,” a Shell spokesperson said, calling the investment-linked tax relief measure a “critical principle” of the levy.
The package of support was worth 15 billion pounds, Sunak said. A similar support package in February was worth 9 billion pounds and Sunak said the government was overall providing 37 billion pounds to help consumers.
On top of the 400 pound energy bill credit for all households – which replaces an earlier repayable 200 pound grant – the government will provide more targeted support for poorer households than before.
More than 8 million low-income households will receive an extra 650 pound cost-of-living grant, with smaller additional sums for all pensioners and the disabled.
The announcement also comes at a time when Johnson is keen to move the conversation away from a damning report detailing a series of illegal lockdown parties at his Downing Street office.
Labour, which had been campaigning hard for a windfall tax, said the U-turn showed the Conservative government was motivated by politics rather than a desire to help people.
“Labour called for a windfall tax because it is the right thing to do, the Conservatives are doing it because they needed a new headline,” said Labour’s economic policy chief Rachel Reeves.
The move, which will give each UK household a 400 pound discount on their energy bill and more for lowest-income households, marks a change of heart for Prime Minister Boris Johnson’s government, which had previously resisted windfall taxes, calling them a deterrent to investment.
It is the second emergency policy intervention to help with rising bills this year.
Facing intense political pressure to provide more support for people coping with what political opponents and campaigners have called a cost-of-living crisis, finance minister Rishi Sunak said energy firms were making extraordinary profits while Britons struggled.
“We will introduce a temporary and targeted energy profits levy but we have built into the new levy a new investment allowance that means companies will have a new and significant incentive to reinvest their profits,” Sunak told parliament.
