inflation | London taxes oil giants to help households

The UK government has announced that it will use a windfall tax on oil and gas companies to raise funds for direct payments to households, totaling around 15 billion pounds (about $24 billion), to alleviate the cost of living crisis in the country.

Rishi Sunak, Chancellor of the Exchequer, announced the measures on Thursday amid growing pressure on the government to help households cope with rapidly rising inflation and energy bills. Mr Sunak said oil and gas companies had benefited from soaring global commodity prices, partly due to the war in Ukraine, and the money could be used to protect low-income households.

Oil and gas companies will have to pay a 25% tax on their “extraordinary” profits. This tax will be temporary and will be phased out when energy prices return to normal, Sunak said. The tax will raise around £5 billion (around $8 billion) over the next year, around a third of the cost of direct payments to households, the Treasury has estimated. As part of this new levy, there is an investment allowance which will help companies reduce their tax if they reinvest their profits in Britain.

“The oil and gas sector is making extraordinary profits,” Sunak told parliament lawmakers. “Not because of recent changes in risk-taking, innovation or efficiency, but because of soaring global commodity prices.

“That’s why I support the argument that these profits should be taxed fairly,” he added.

A diversion?

The UK government has been accused of being slow to announce more aggressive measures to support low-income households amid rising food and energy prices, leaving people to make tough choices and often painful about how to spend their limited income. Today the government appears to be trying to deflect attention from illegal parties in Downing Street, after a much-awaited report into the gatherings was released on Wednesday.

Britons are set to suffer one of the worst cuts to their disposable income in decades. Last month Britain’s annual inflation rate soared to 9%, the highest in 40 years. Consumer confidence has plummeted. The central bank predicted that high inflation would limit consumer spending and warned that Britain risked a recession.

On Thursday, Sunak detailed the payments, although many will not be sent out until the end of the year. Each household will receive 400 pounds in October (nearly C$650). In addition, more than 8 million low-income households will receive 650 pounds (about C$1,050), split into two installments in July and the fall. Some other 8 million pensioners already receiving help with their energy bills will get £300 towards the end of the year, and 6 million people on disability benefits will get a further £150 in September. Local councils are also reportedly giving £500m (over C$800m) in October to help households.

In April, the price cap on household energy bills rose by 54%, bringing the amount that 22 million households pay to around 2,000 pounds, or around C$3,200 per year. The government gave most households a £150 cut on their bills in April and said it would offer another £200 cut in October, to be paid back over five years.

The government has increased this assistance, as bills are expected to rise further. This week the director of Ofgem, which sets the price cap, said the cap could be increased by a further £800 in October. On Thursday, Mr Sunak said he would scrap the October aid repayment plan and double it to 400 pounds.

This article was originally published in The New York Times.