UK imposes 25% windfall energy tax to help families with higher bills

  • Sunak says energy producers are making extraordinary profits
  • Five billion pounds in taxes, compensating for a 15 billion pound support plan
  • High inflation is causing severe distress for the British – SONAK

LONDON (Reuters) – Britain announced on Thursday an unexpected 25 percent tax on profits for oil and gas producers, along with a 15 billion pound ($18.9 billion) support package for families struggling to cover rising energy bills.

The move, which will give every UK family a £400 rebate on their energy bill and more for low-income households, marks a change of heart for Prime Minister Boris Johnson’s government, which has previously resisted unexpected taxation, calling it an investment deterrent.

This is the second emergency policy intervention to help with rising bills this year.

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Facing intense political pressure to offer more support to people dealing with what political opponents and activists have called a cost-of-living crisis, Finance Minister Rishi Sunak said energy companies were making extraordinary profits while the British were fighting.

“We will introduce a temporary and targeted energy dividend tax, but we have included the new tax as a new investment allowance, which means that companies will have a new and important incentive to reinvest their profits,” Sunak told parliament.

“The more a company invests, the less taxes it will pay.”

Snack did not refer to this as an unexpected tax. He said it would raise 5 billion pounds ($6.30 billion) in the next 12 months and be phased out as oil and gas prices return to normal. He did not say how the rest of the package would be funded.

He also said that there would be a new investment allowance that would nearly double the tax credit available to companies on their investments.

The UK’s energy regulator said on Tuesday that the ceiling for gas and electricity bills is set to rise another 40% in October, due to rising global energy prices. Read more

Other European governments have also committed tens of billions of euros in measures to help ease energy prices. Read more

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support package

Shares in Harbor Energy (HBR.L), the UK’s largest North Sea oil and gas producer, turned negative after Sunak’s announcement but quickly rebounded losses.

Shares of British oil company EnQuest (ENQ.L) focused on the North Sea fell 8.5% at 1448 GMT – their biggest daily drop in more than a month and well below the European oil and gas index (.SXEP) which was up more than more than 1%.

Shares in major oil companies BP (BPL) and Shell which are global companies and less affected by UK policy, touched session lows after the announcement, but recovered and rose more than 1%.

“We have consistently emphasized the importance of a stable environment for long-term investment,” a Shell spokesperson said, describing the investment-linked tax credit measure as a “critical principle” for taxation.

Sunak said that the support package amounted to 15 billion pounds. The value of a similar support package in February was 9 billion pounds, and Sunak said that the government in general provided 37 billion pounds to help consumers.

On top of the £400 energy bill credit for all families – which replaces a £200 repayable grant – the government will provide more targeted support to poor families than before.

More than 8 million low-income families will receive an additional £650 cost of living grant, with smaller additional amounts for all retirees and people with disabilities. Read more

The announcement also comes at a time when Johnson is keen to move the conversation away from a debit report detailing a series of illegal shutdowns in his Downing Street office. Read more

Labour, which has been fighting hard for a windfall tax, said the turnaround showed the Conservative government was driven by politics rather than a desire to help the people.

“Labour called for a windfall tax because it’s the right thing to do, and the Conservatives are doing it because they needed a new address,” Labor economic policy chief Rachel Reeves said.

severe disturbance

Inflation hit a 40-year high of 9% in April and is expected to rise further, while government forecasts last month showed living standards would see their biggest drop since records began in the late 1950s. Read more

“The high inflation we are seeing right now is causing severe distress to people in this country. I know they are worried, I know people are suffering,” said Sunak, supporting the Bank of England to use interest rates to control the situation.

British government bond futures touched an intraday low when Sunak spoke, underperforming against German and US government debt.

“The additional financial support to households unveiled by the chancellor today falls short of fully offsetting the decline in real household income from higher utility prices, but it will cushion the blow and support economic activity,” said Paul Dills, chief UK economist at consultancy Paul Dills. Capital Economics.

He added: “Overall, this support is badly needed for millions of households. But it will not ease all the pain and may mean that the Bank of England has to raise rates more aggressively to beat inflation.”

(dollar = 0.7942 pounds)

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Additional reporting by Moviga M, Andy Bruce, Kylie McClellan, Shadia Nasrallah and David Milliken; Writing by William James; Editing by Hugh Lawson, Frank Jack Daniel, Michael Holden, Susan Fenton and Catherine Evans

Our Standards: Thomson Reuters Trust Principles.

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