UK oil and gas contingency tax to raise $6.3bn

Finance Minister Rishi Sunak introduced a new 25 percent income tax on energy producers such as HELL (HELL) and Shell (RDSA) on Thursday. The levy will be phased out as oil and gas prices return to more normal levels, he said.

“The oil and gas sector is making incredible profits not as a result of recent change, risk taking, innovation or efficiency, but as a result of rising global commodity prices,” Sunak said in a speech to parliament.

The tax will help fund a new relief package worth around £15 billion ($19 billion). Sunak said the government will make one-off direct payments to millions of the country’s most vulnerable households. About eight million low-income households will receive £650 in two installments at the end of this year, with another eight million pensioners receiving £300.

Companies including BP and Shell earned a total of $32. billion in profits last year amid strong global growth oil and natural gas prices. Russia’s invasion of Ukraine in February sent prices even higher over fears that the conflict would lead to energy shortages.
Households have been hit hard. On Tuesday, the head of the UK’s energy regulator said he expects annual bills for millions of households to rise by 40% to around £2,800 ($3,500) from October. This is just six months after the regulator raised the price ceiling – Suppliers are allowed to charge customers the maximum charge per unit of energy – by 54%, which is the biggest increase since the price cap began five years ago.

Explosive energy bills are fueling price increases across the economy. In April, consumer price inflation in the UK reached 9%, the highest level in 40 years. And as wages fail to keep up with rising food and fuel prices, living standards have fallen to their lowest level since the 1950s, according to the UK’s Fiscal Responsibility Office.

In February, Sunak provided some relief by offering households a £200 rebate on electricity bills from October, which were to be repaid in installments over the next few years. On Thursday, Sunak doubled the discount and said there was nothing to return.

“This support is now clearly a grant,” he said.

Financial Times Earlier this week, it was reported that the government would also target the incredible profits of large electricity generating companies such as EDF (ECIFY) and RVE (RBEOY). But Sunak said his department needed more time to develop a plan for the energy sector.

Anti-poverty activists hailed the measures taken on Thursday.

“The Chancellor has clearly listened to concerns that support for those experiencing fuel poverty should be widespread, but should also be focused on the most vulnerable,” Simon Francis, coordinator of the Fuel Poverty Coalition, told CNN Business.

Francis added that while the new measures would “take the edge off” the recent rise in energy prices, those struggling with fuel shortages need more reassurance that support will be available over the medium term.

Mark Thompson contributed reporting.

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