UK imposes unexpected tax on oil and gas giants due to rising energy bills

LONDON – British Finance Minister Rishi Sunak has imposed an unexpected tax on major oil and gas companies as the government struggles to alleviate the country’s worsening cost of living crisis.

The measures come a day after a deeply embarrassing investigation into the shutdown of parties in Downing Street and amid continued pressure on the ruling Conservative government to do more as rising inflation drives up 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, innovation or efficiency, but as a result of rising global commodity prices driven in part by the Russian war,” Sunak told lawmakers in the House of Commons. Thursday.

“That is why I sympathize with the argument for a fair tax on these profits,” Sunak said, much to the chagrin of opposition MPs.

Sunak said the government is imposing a “temporary tax on targeted energy profits” with a so-called “investment allowance” to incentivize oil and gas companies to reinvest their profits. The new tax will be imposed on the profits of oil and gas companies at a rate of 25%, before being phased out when commodity prices return to normal levels.

The decision to impose an unexpected tax on energy companies marks another turning point for Prime Minister Boris Johnson’s government. Sunak had previously rejected the one-off tax, saying that while it looked “superficially attractive” it would eventually discourage investment.

Opposition lawmakers have repeatedly called on the government to impose a one-time tax on major energy companies, saying the move would help fund a national support package for families.

British oil and gas giants BP and Shell reported huge quarterly profits earlier this month, as they benefited from higher commodity prices during the Russian attack on Ukraine. And it sparked calls for the government to impose taxes on its excess cash.

“Today it seems that the chancellor has finally understood the problems plaguing the country [is] “In response to Sunak’s statement,” Rachel Reeves, shadow chancellor for the opposition Labor Party, said.

Reeves said Labor first demanded an unexpected tax on oil and gas companies about five months ago. And even when Senk finally announced a one-time tax he “doesn’t dare say the words,” adding that “politics is one that you don’t dare utter in its name.”

“Months ago, it was clear that more was needed to help people cut their bills, so what took this government so long?” Reeves said. “This government has cost our country dearly indecision.”

The British pound was trading mixed at around $1.2565 on Thursday afternoon.

Sunak said high inflation is causing “severe distress” as the economic situation has become more dire this year.

UK inflation jumped to 9% last month as food and energy prices soared, hitting their highest annual rate in 40 years. The Bank of England expects inflation to rise to more than 10% later this year.

Sunak said around 8 million low-income families would be sent a one-time payment for a cost of living of 650 pounds ($819). The first batch will be released directly to retail bank accounts in July, with the second batch sent in the fall.

The chancellor has announced that 8 million households will receive an additional £300 winter fuel payment and a one-time disability cost of living payment of £150.

Sunak also said a £200 loan for energy bills now no longer needs to be repaid and that support for families has been increased to £400.

The total cost of living measures announced on Thursday came to £15 billion, Sunak said, bringing the total cost of living support provided this year to £37 billion.

“Targeted additional support for 8 million low-income people is the right approach and will help many more on edge,” New Economics CEO Miyata Wahnbuhle said via Twitter.

“But a one-time £650 payment does not start to restore the huge loophole in Social Security that has left these families vulnerable to the #CostOfLivingCrisis.”

Paul Johnson, director of the Institute for Fiscal Studies, called the measures “a big and expensive package” from Sunak.

“Disappointing to hear the chancellor conclude once again by claiming tax cuts. It certainly isn’t. He’s raising it, to historically high levels,” Johnson said on Twitter. “I think it’s the right thing to do. But his tax plan is to raise taxes, not cut them,” he says constantly.

Earlier this week, the head of Britain’s energy regulator Ofgem warned the cap on tariffs for the most widely used consumer energy was set to rise by £800 in October, bringing the typical household bill to £2,800 a year.

The suggested maximum would be a significant jump from the current level of £1,971 which, when introduced last month, represented a record high of £700.

“The price changes we’ve seen in the gas market are really a not once in a generation event since the 1970s oil crisis,” Ofgem CEO Jonathan Brierley told lawmakers on Tuesday during a Business, Energy and Industry Strategy Committee meeting. .

He added that a proposed price cap increase in October could see the number of fuel-poor households double to nearly 12 million from 6.5 million. A lack of fuel indicates that a family cannot afford to heat their home to an adequate temperature.

Activists described the possibility of an increase in the energy bill this winter as a “terrifying scenario”, warning that only the emergency budget can solve the crisis gripping the fifth largest economy in the world.

The End Fuel Poverty Coalition has estimated that if fuel poverty levels reach projected limits, thousands of additional winter deaths from cold homes will occur in 2022 and 2023—particularly among the elderly and vulnerable.

“The unfairness in all of this is incredible,” said Brenda Boardman, Honorary Fellow and Researcher in Low Carbon Energies at the University of Oxford’s Institute for Environmental Change.

“We desperately need an energy market that is tailored to the needs of consumers, not the needs of suppliers. This is, after all, a basic necessity, ultimately related to life and death, as well as comfort, good health and child development.”