UK introduces temporary 25% ‘windfall tax’ on oil and gas profits

The British government on Thursday unveiled a £15 billion emergency aid package including a 25% tax on the profits of oil and gas companies, to help offset the rising cost of living.

Treasury chief Rishi Sunak said the government would introduce the temporary windfall tax which is expected to raise £5bn (over C$8bn) over the next year to help fund payments in cash in order to help millions of people cope with soaring energy bills, Sunak mentioned.

“The oil and gas sector is making extraordinary profits,” Sunak said. “Not as a result of recent shifts in risk-taking, innovation, or efficiency, but as a result of soaring global commodity prices due in part to the Russian war. And for that reason, I favor the argument of taxing these profits fairly.”

Cash back for households

Sunak said government aid will target the most vulnerable, including people with disabilities and pensioners. Some eight million of the country’s lowest-income households will receive a one-time government payment of 650 pounds (just over C$1,000).

Each household will also benefit from a £400 reduction on household energy bills in October. This will help offset energy bills which have risen, on average, by 700 pounds a year this year.

Britain’s energy regulator said this week that national energy bills could rise another 800 pounds a year in the autumn as Russia’s war in Ukraine and a rebound in demand from the pandemic push prices up. oil and natural gas prices.

As is the case in many countries, inflation has soared in Britain in recent years, with the official rate hitting a 40-year high of 9%. This compares to 6.8% in Canada and 8.5% in the United States.

The announcement of the windfall tax was a change of direction for Boris Johnson’s government, which had previously said imposing one would discourage investment in the UK’s energy sector. But the government is under heavy pressure to act as soaring energy and food bills are causing financial hardship for British households.

Sunak said the temporary tax would include an “investment allowance” to incentivize companies to invest in oil and gas extraction in the UK.

“For every pound a company invests, it recoups 90% tax relief. So the more a company invests, the less tax it will pay,” Sunak said.