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.
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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 targeted temporary tax on energy profits 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 windfall 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.
British oil and gas giants BP and Shell reported huge quarterly profits earlier this month.
Christian Buus | In pictures | Getty Images
Rachel Reeves, shadow finance minister for the opposition Labor Party, welcomed Sunak’s change of heart on politics after months of opposition to the government.
“It looks like the Chancellor is finally being kicked and screamed into a U-turn, and adopts Labour’s call for a windfall tax on the profits of oil and gas producers four months late,” Reeves said via Twitter Thursday morning.
“Why did it take so long? Why did the families have to struggle and worry while he dragged his feet?”
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, reaching its 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 payment of £650 ($819) for living costs. 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.
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.
Earlier this week, the head of Britain’s 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 for 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.
Activists described the prospect of another energy bill hike this winter as a “nightmare scenario“, warning that only an emergency budget could solve the crisis affecting 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.”