Rishi Sunak has hit British oil and gas firms with a 25 per cent windfall tax to pay for a £15bn package to help households with the cost of living crisis.
The chancellor’s interventions this year will see every household in the UK given £550 to help pay their energy bills, but with the country’s poorest and most vulnerable households given extra support.
The new “energy profits levy” – which is expected to raise £5bn this year – will also see oil and gas companies offered tax incentives to invest in new projects, with firms able to claim 90 per cent of their investment spending back in tax relief.
Sunak said the new windfall tax, a policy Labour has been calling for since January, was necessary because the industry is claiming “extraordinary profits not as the result of recent changes to risk taking or innovation … but as the result of surging global commodity prices driven in part by Russia’s war”.
Sunak’s announcement in the House of Commons was met by jeering and mocking by the Labour benches as they reminded him that he had effectively stolen their policy after saying for months it would not happen.
“It is possible to tax extraordinary profits fairly and incentivise investment,” Sunak said.
Sunak announced an effective £200 loan given to every household earlier this year will be doubled to £400 and turned into a grant, with future repayments cancelled.
The UK’s 8m lowest wage earners will receive a £650 grant over two payments, while 8m pensioners receiving the winter fuel allowance will get a one-off payment of £300.
People on disability benefits, most of whom will receive the £650 payment, will get a further £150.
The chancellor’s tax raid on UK energy giants is forecast to raise around £5bn, meaning he will either have to borrow money to fund the cost of living support package or cut spending elsewhere.
“I trust the British people and I know they understand no government can solve every problem, particularly the complex and global challenge of inflation,” Sunak said.
“But this government will never stop trying to help people to fix problems where we can, to do what is right as we did throughout the pandemic.”
Labour shadow chancellor Rachel Reeves was in a triumphant mood as she delivered a response to Sunak’s statement, saying: “After this announcement, let there be no doubt about who is winning the battle of ideas in Britain – it is the Labour party.”
“It feels like the chancellor has finally realised the problems the country is facing,” she said.
“For months it has been clear that more was necessary to help people bring their bills down, so what took this government so long? Every day they have refused to act, £53m more added to Britain’s household bills in this cost of living crisis. This government’s dither and delay has cost our country dearly.”
The likes of BP and Shell can cut their tax bills through a new investment allowance announced today by the chancellor.
Similar to the temporary super-deduction launched in March last year, energy companies can net off the cost of qualifying investments from their corporation tax bill. The policy is designed to ramp up investment in the UK’s energy infrastructure.
For every £1 energy companies invest, they will recoup 90 per cent in tax relief, Sunak said, adding the more they invest “the less tax they will pay”.
Critics have argued these support measures should have been launched at March’s spring statement, when Sunak had an estimated £28bn of fiscal headroom to use.
In the intervening time between March and today’s statement, inflation has climbed to a 40-year of nine per cent.
Forecasts published by the National Institute of Economic and Social Research earlier this month found a further 250,000 households would tip into extreme poverty without government action.