The UK government has announced a temporary windfall tax on oil and gas giants to fund a relief package for households struggling with rising bills.
Chancellor of the Exchequer Rishi Sunak has previously resisted opposition parties’ calls for a windfall tax, warning about the impact it would have on future investment.
But he has now been forced to unveil emergency measures to tackle the impact of soaring inflation, which has reached a 40-year high.
Millions of households will receive a £400 ($504) discount off their energy bills.
Around 8 million of the lowest income households will be sent a one-off payment of £650, and pensioners will receive a one-off £300 payment.
To help fund the package, which will cost £15 billion ($19 billion), the government will introduce a 25 percent profit levy on oil and gas giants, which it expects to generate £5 billion ($6.3 billion) in tax revenues.
Addressing the House of Commons on May 26, Sunak acknowledged that high inflation is causing “acute distress” for people in the country, telling MPs, “I know they are worried, I know people are struggling.”
He said the government “will not sit idly by while there is a risk that some in our country might be set so far back they might never recover.”
Sunak said the oil and gas sector is making “extraordinary profits” not as the result of innovation or efficiency, but as the result of “surging global commodity prices driven in part by Russia’s war.”
“For that reason I am sympathetic to the argument to tax those profits fairly,” he said.
Meanwhile, the chancellor said he is introducing a “new investment allowance” to incentivise energy firms to reinvest their profits in developing domestic energy sources.
Sunak stopped short of also slapping the new levy on electricity generators, although he said the Treasury was evaluating the scale of the profits being made in the industry and what steps could be taken.
Paul Johnson, the director of the Institute for Fiscal Studies, called it a “big, expensive package from Rishi Sunak.”
“In conjunction with tax rises already in place this is hugely redistributive - taking from high earners and giving to the poor,” he wrote on Twitter.
Before the announcement, oil and gas producers warned that a windfall tax would do long-term harm to the industry.
Offshore Energies UK, which represents the offshore oil and gas industry, said the tax would burden firms with “sudden new costs,” which would “disrupt planning and investment and, above all, undermine investor confidence.”