Cost of living: Rishi Sunak U-turn delivers £15 billion boost with all households to get £400 energy bills discount after temporary windfall tax
Despite Tory MPs being ordered to vote against such a proposal just last week, the Chancellor announced a £5 billion tax will be levied on oil and gas giants to help with the cost-of-living.
The Chancellor was forced to unveil emergency measures as part of a £15 billion package to tackle the impact of soaring inflation, which has reached a 40-year high.
As well as the universal payment there was targeted support for the poorest, the elderly and the disabled. Opposition parties generally welcomed the package, but called for more long-term support.
Addressing the Commons, Mr Sunak was heckled with cries of “what took you so long” after announcing policies Labour had been advocating for months.
He said: “The oil and gas sector is making extraordinary profits not as the result of recent changes to risk taking or innovation or or efficiency as the result of surging global commodity prices driven in part by Russia’s war.
“For that reason I am sympathetic to the argument to tax those profits fairly.
“It is possible to both tax extraordinary profits fairly and incentivise investment.”
The package would mean that almost all of the eight million most vulnerable households would receive at least £1,200 of support, including a £150 council tax rebate which has already been announced.
A further £500 million will be allocated to the fund administered by councils to help households facing extra hardship.
The £400 in universal support from October replaces the initial plan for a £200 loan, with Mr Sunak scrapping the requirement to repay the money.
Energy companies already pay 40 per cent of their profits in tax, but the extra levy will bring this up to 65 per cent until December 2025.
However, not only could this be phased out if oil and gas prices return to more normal levels, but companies can also avoid almost all their tax bill after the Chancellor doubled the relief they can get for investing in new oil and gas extraction.
He said: “Like previous governments, including Conservative ones, we will introduce a temporary targeted energy profits levy, but we have built into the new levy… a new investment allowance similar to the super-deduction that means companies will have a new and significant incentive to reinvest their profits.
“The new levy will be charged on profits of oil and gas companies at a rate of 25 per cent.
“It will be temporary and when oil and gas prices return to historically more normal levels the levy will be phased out.”
Mr Sunak said the temporary windfall tax on oil and gas giants will raise “around £5 billion of revenue over the next year”.
He explained: “So that we can help families with the cost of living and it avoids having to increase our debt burden further because there is nothing noble about burdening future generations with evermore debt today because politicians of the day were too weak to make the tough decisions.
“Over 8 million households already have income low enough for the state to be supporting their cost of living through the welfare system.”
Consumer Prices Index inflation rose to 9 per cent in April and consumers are braced for the energy price cap to rise by more than £800 to £2,800 in October as the squeeze on living standards continues.
The Chancellor told MPs: “The high inflation we are experiencing now is causing acute distress to the people of this country.
“We can get inflation under control. It is not some abstract force outside our grasp. It may take time, but we have the tools we need and the resolve it will take to reduce inflation.”
The idea of a windfall tax had faced resistance in Government, with Mr Sunak himself among ministers to warn about the impact it would have on future investment.
Shadow chancellor Rachel Reeves claimed Mr Sunak had been “dragged kicking and screaming” into performing the U-turn.
She asked: “Why has it taken so long? Why have families had to struggle and worry while he dragged his feet?”
Ms Reeves added the Labour Party is winning “the battle of ideas in Britain”.
She continued: “Today, it feels like the Chancellor has finally realised the problems the country are facing. We first called for a windfall tax on oil and gas producers nearly five months ago to help struggling families and pensioners.
“Today, he has announced that policy but he can’t dare say the words: it’s a policy that dare not speak its name with this Chancellor.
“And it was Labour that first highlighted the unfairness of this Government buy now, pay later compulsory loan scheme. It shouldn’t have taken a rocket scientist to work out that this wouldn’t cut and we pointed it out at the time.”
SNP work and pensions spokeswoman Kirsty Blackman claimed the package was “not enough”.
She said: “It’s quite amusing to hear the Chancellor talk about this being ‘timely’, I mean it is timely it just happens to have happened in the week of the Sue Gray report, it just happens that that report came out yesterday and the Chancellor has suddenly realised today that people are really struggling, that he’s suddenly realised he needs to announce something about it.
“I don’t understand why he has announced only a £15 billion package. He has got £28 billion of fiscal headroom in public sector net debt, he has got £32 billion of fiscal headroom in balancing the current budget, those are the OBR’s figures from March.
“Yet he is refusing to spend that money now in the timely, targeted way that it is needed now for people.”
Ms Blackman said she is “very glad” money has been announced for the poorest households, but warned: “It’s not enough.”
Mr Sunak also faced questions about his claims to be helping families cope with the rising cost of living after imposing a series of tax increases.
Liberal Democrat leader Sir Ed Davey said: “The Chancellor is hammering families with a £800 tax hike this year, more than wiping out what he announced today.
“It is the Sunak scam, promising you help but picking your pockets while you’re not looking
Tories also criticised Mr Sunak for announcing the new tax.
Backbencher Richard Drax told him: “Throwing red meat to socialists by raising taxes on businesses and telling them where to invest their money is not the Conservative way of encouraging those who create our prosperity and jobs to do just that.”
Torsten Bell, director of living standards at think tank the Resolution Foundation, said the package was “big and very welcome indeed”, filling the “huge gap in previous announcements with large targeted support for those hardest hit”.
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