Britain announced on Thursday, May 26, 2022, a 25 percent windfall tax on oil and gas producers’ profits, alongside a 15-billion-pound ($18.9bn) package of support for households struggling to pay soaring energy bills.
The move, which will give each United Kingdom household a 400-pound ($500) discount on energy bills and provide more for the lowest-income households, marks a change of heart for Prime Minister, Boris Johnson’s government, which previously resisted windfall taxes, calling them a deterrent to investment. The latest decision is the second emergency policy intervention to help with rising bills this year.
Facing intense political pressure to provide more support for billpayers coping with what political opponents and campaigners called a cost-of-living crisis, Chancellor of the Exchequer, Rishi Sunak, disclosed that energy firms are making extraordinary profits while Britishers 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. The more a company invests, the less tax they will pay.”Chancellor of the Exchequer, Rishi Sunak
Sunak did not refer to it as a windfall tax but said it would raise 5 billion pounds ($6.30bn) in the next 12 months and be phased out as oil and gas prices return to normal, but he did not set out how the rest of the package would be funded. He also intimated that there would be a new Investment Allowance that would nearly double the tax relief available for firms on their investments.
An Earlier Announcement by Energy Regulator
On Tuesday, May 24, 2022, the UK energy regulator disclosed that a cap on gas and electricity bills was set to rise by another 40 percent in October 2022, caused 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.
Report suggested that Sunak’s announcement also came at a time when Johnson is keen to move the conversation away from Senior Civil Servant, Sue Gray’s report detailing a series of illegal lockdown parties that took place at No.10 Downing Street.
Labour, which campaigned hard for a windfall tax, said the U-turn showed the Conservative government is motivated by politics rather than a desire to help people. Labour Party’s Economic Policy Chief, Rachel Reeves, said “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”.
Inflation reached a 40-year peak of 9 percent in April 2022 and it is projected to rise further, while government forecasts last month (April) showed living standards were set to see their biggest fall since records began in the late 1950s. Sunak said “The high inflation we are experiencing now is causing acute distress for people in this country. I know they are worried; I know people are struggling”, backing the Bank of England to use interest rates to bring the situation under control.