The British government unveiled a 15 billion-pound emergency aid package on Thursday featuring a 25 per cent tax on profits at oil and gas firms, to help offset increases in the cost of living.
Treasury chief Rishi Sunak said the government would introduce the temporary windfall tax which is expected to raise 5 billion pounds (more than $8 billion Canadian) over the next year to help fund cash payments to help millions of people cope with sharply rising energy bills, Sunak said.
“The oil and gas sector is making extraordinary profits,” Sunak said. “Not as the result of recent changes to risk taking or innovation or efficiency, but as the result of surging global commodity prices driven in part by Russia’s war. And for that reason, I am sympathetic to the argument to tax those profits fairly.”
Cash rebates for households
Sunak said the government help will target the most vulnerable people, including disabled people and retirees. Some eight million of the country’s lowest-income households will receive a one-time government payment of 650 pounds (a little over $1,000 Canadian).
Every household will also receive a 400-pound discount on domestic energy bills in October. That will help offset energy bills that have increased, on average, by 700 pounds a year this year.
Britain’s energy regulator said this week that domestic energy bills could shoot up by another 800 pounds a year in the fall, as Russia’s war in Ukraine and rebounding demand after the pandemic push oil and natural gas prices higher.
As is the case in many countries, inflation has skyrocketed in Britain in recent years, with the official rate hitting a 40-year high of 9 per cent. That compares with 6.8 per cent in Canada and 8.5 per cent in the U.S.
The announcement of the windfall tax was change in direction for the government of Boris Johnson, which had previously said that imposing one would deter investment in the U.K.’s energy sector. But the government is under heavy pressure to act as skyrocketing energy and food bills cause financial hardship for British households.
Sunak said the temporary levy would feature an “investment allowance” to motivate companies to invest in oil and gas extraction in the U.K.
“For every pound a company invests, they’ll get back 90 per cent in tax relief. So the more a company invests, the less tax they will pay,” Sunak said.