LONDON: Britain announced a 25 percent windfall tax on oil and gas producers’ profits on Thursday, alongside a 15 billion pound ($18.9 billion) package of support for households struggling to meet soaring energy bills.
The move, which will give each UK household a 400 pound discount on their energy bill and more for lowest-income households, marks a change of heart for Prime Minister Boris Johnson’s government which had previously resisted windfall taxes, calling them a deterrent to investment.
It 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 have called a cost-of-living crisis, finance minister Rishi Sunak said energy firms were making extraordinary profits while Britons 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,” Sunak told parliament.
“The more a company invests, the less tax they will pay.”
Sunak did not refer to it as a windfall 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 set out how the rest of the package would be funded.
UK asks North Sea oil and gas sector to set out plan to reinvest profits
He also said there would be a new Investment Allowance that would nearly double the tax relief available for firms on their investments. On Tuesday the UK energy regulator said that a cap on gas and electricity bills was set to rise by another 40% in October, cause 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.
Shares in Harbour Energy, the biggest UK North Sea oil and gas producer, turned negative after Sunak’s announcement but retraced their losses swiftly.
British North Sea focused oil firm EnQuest’s shares were down 3.8% at 1236 GMT, their biggest daily drop in over two weeks and well below an index of European oil and gas firms rising 0.7%. Shares in oil majors BP and Shell, which are global companies and so less affected by UK policy, touched session lows after the announcement, but recovered and were up around 0.9%. The package of support was worth 15 billion pounds Sunak said. A similar support package in February was worth 9 billion pounds and Sunak said the government was overall providing 37 billion pounds to help consumers.