Chancellor Rishi Sunak refused to rule out a windfall tax on energy companies yesterday, warning that “no option is off the table” if companies fail to invest in the UK’s energy sector.
He told the House of Commons that energy companies need to invest their “extraordinary profits” back into “British jobs, growth and energy security.”
This follows the Labour Party pushing for a vote on a windfall tax in Parliament, with the opposition calling for a one-off £1.2bn levy on North Sea oil and gas traders to help shave £600 from household energy bills.
Energy prices have already spiked to nearly £2,000 per year, with watchdog Ofgem unveiling plans earlier this week for a quarterly price cap to ensure costs go down as soon as soaring wholesale costs ease.
However, analyst group Cornwall Insight has since forecast that the cap will rise to £2,600 per year in October and next January, piling pressure on struggling households during the depths of winter.
With BP and Shell both revealing record underlying earnings in the first three months of trading this year, powered by soaring oil and gas prices, the Chancellor has faced growing pressure to fund much-needed relief for energy users from their profits.
Downing Street has consistently ruled out the prospect of a windfall tax, concerned it will deter investment, with Shell and BP pledging to invest £25bn and £18bn respectively over the coming decade in UK energy projects.
The government recently unveiled ambitious targets to boost renewables, nuclear and North Sea oil and gas exploration as part of its energy security strategy, with the UK looking to reduce its reliance on overseas buyers following Russia’s invasion of Ukraine.
Energy firms operating in the North Sea already pay an elevated 40 per cent tax rate and unlike other industries they were not offered public money when they suffered heavy losses during the pandemic, when demand for oil and gas collapsed across the world.
BP chief executive Bernard Looney warned last week that further levies could jeopardise domestic investment.
He said: “By definition, windfall taxes are unpredictable, and so would challenge investment in home-grown energy.”