Oil and gas companies operating in the UK are to be hit with a 25 per cent windfall tax on their profits, the government has announced.
Chancellor Rishi Sunak has said he will soon introduce a levy on profits made within the energy sector as part of a plan to provide financial support to households, who are being squeezed increasingly hard by rising costs of living.
Campaigners have for some months been calling for the government to do more to provide financial support directly or indirectly to people feeling the pinch.
It is anticipated that the windfall tax on energy companies will raise in the region of £5 billion, which can then be reallocated in support of households across the country.
Around 8 million of the least well-off UK households are set to receive £650 each as one-off payments that should help them make ends meet.
Meanwhile, all households are now set to effectively receive £400 discounts off their energy bills, which have risen dramatically this year and are expected to increase sharply again in the autumn.
Part of the rationale behind the decision to introduce a windfall tax on oil and gas companies is that they have generally been reporting bumper profits in recent months on the back of unusually high prices.
Rishi Sunak explained in his statements announcing the government’s plans that the taxes on energy companies will be rolled back as and when prices on oil and gas supplies return to more historically normal levels.
“Fiscal support [for households] should be timely, targeted and temporary,” Mr Sunak said.
“We will put a backstop sunset clause in the legislation with the energy profits levy. It’ll remain in place until prices return to a more normal level,” he added.
Business groups have generally welcomed the decision taken by the chancellor to provide a significant amount of financial support to households across the country.
However, some have sort to emphasise that companies are also being impacted by inflation and are feeling their financial burdens mounting as prices continue to rise.
“For business, the toxic mix of inflation, raw material costs and supply chain disruption is the flip-side of the coin to the problems facing consumers,” argued Hannah Essex from the British Chambers of Commerce in a statement responding to the chancellor’s announcements.
“Unless steps are also taken to ease business costs, they will likely feed into the inflationary pressure on the economy and quickly eat into the financial support announced today,” she added.