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Britain announces tax on oil and gas profits to fund cost-of-living payments

Rishi Sunak, the chancellor of the Exchequer, announced the measures Thursday as the government has come under increasingly intense pressure to help households with rapidly rising inflation and energy bills.Leon Neal/Photographer: Leon Neal/Getty Im

The British government said it would use a windfall profits tax on oil and gas companies to help raise funds for direct payments to households, totaling about 15 billion pounds (about $19 billion), to ease the country’s cost-of-living crisis.

Rishi Sunak, the chancellor of the Exchequer, announced the measures Thursday as the government has come under increasingly intense pressure to help households with rapidly rising inflation and energy bills. Sunak said oil and gas companies had benefited from the surge in global commodity prices, in part driven by the war in Ukraine, and that money could be used to protect low-income households.

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Oil and gas companies will be charged a 25 percent tax on their “extraordinary” profits. The tax will be temporary and phased out as energy prices return to normal, Sunak said. The tax will raise around 5 billion pounds over the next year, amounting to about one-third of the cost of the direct payments for households, the Treasury estimated. Within this new levy, there is an investment allowance that will help companies cut their tax if they reinvest their profits in Britain.

“The oil and gas sector is making extraordinary profits,” Sunak told lawmakers in Parliament. “Not as the result of recent changes to risk-taking or innovation or efficiency, but as the result of surging global commodity prices.

“For that reason, I am sympathetic to the argument to tax those profits fairly,” he added.

The British government has been accused of being slow to announce more aggressive measures to support low-income households amid rising food and energy prices, causing people to make difficult and often painful choices about how to spend their limited incomes. Now the government appears to be trying to steer focus away from the lawbreaking lockdown parties held at Downing Street after a long-awaited report into the gatherings was published Wednesday.

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Britons are expected to experience one of the worst squeezes on their disposable incomes in decades. Last month, Britain’s annual inflation rate jumped to 9 percent, the highest in 40 years. Consumer confidence has plummeted. The central bank forecast that high inflation will restrict consumer spending and warned that Britain is at risk of a recession.

On Thursday, Sunak detailed the payments, though many will not be sent until later in the year. Every household will receive 400 pounds in October. In addition, more than 8 million low-income households would receive 650 pounds, split across two payments in July and the fall. Another 8 million retired people already receiving help with their energy bills would get 300 pounds toward the end of the year, and 6 million people on disability payments would get another 150 pounds in September. Local councils would also be giving 500 million pounds in October to support households.

In April, the price cap on household energy bills rose 54 percent, raising the amount that 22 million households pay to about 2,000 pounds a year. The government gave most households 150 pounds off their household bills in April and said it would cut another 200 pounds in October, to be repaid over five years.

The government has raised this support as bills are expected to rise further. This week, the head of Ofgem, which sets the price cap, said the cap could increase by another 800 pounds in October. On Thursday, Sunak said he would scrap the repayment plan for the October relief and double it to 400 pounds.

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