UK slaps 25% windfall tax on profits of oil and gas companies
30 May 2022
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The Boris Johnson government in the UK has slapped a £5 billion ($6.3 billion) windfall tax on oil and gas companies whose incomes have gone up with the imposition of sanctions on Russian oil companies, Europe’s main source of energy.
UK Chancellor of the Exchequer Rishi Sunak announced the 25 per cent levy on th profits of energy companies to help fund support for Britons facing the burden of rising cost of living.
The money will be used to finance one-off grants of £650 to more than 8 million of the poorest households in the UK, Rishi Sunak said in the House of Commons on Thursday.
Around 8 million pensioners will receive payments of £300 while energy bills will also be subsidised by £400 for every household in the UK, replacing a previous plan for £200 loans. The package is worth £15 billion overall, Sunak said, bringing total aid introduced so far to £37 billion.
“We know that households are being hit hard right now,” Sunak said. “Fiscal support should be timely, targeted and temporary.”
The government’s move to tax high earning companies follows a record squeeze on living standards amidst public perception that these high earning companies are part of misery brought about by rising costs.
Reports say that the levy on oil companies is only the beginning and it may be expanded to include other big dividend payers, including power generators, miners and consumer-goods firms.
Big miners like Rio Tinto Plc, which is forecast to be the single biggest dividend payer, and other big earners such as Glencore Plc and Anglo American Plc, besides British American Tobacco Plc, Unilever Plc and AstraZeneca Plc are also expected to come under the new windfall levy.
Some of the senior ministers in the British government have opposed the special levy on energy firms as they fear it would stymie investment. Also, it goes against the Conservative claim of supporting business.
Robbing Peter to pay Paul is a key policy of the opposition Labour Party and this would be especially sensitive now because it undermines the core Conservative values.
Sunak, however, tried to head off criticism that the measure is anti-business by announcing a new 80 per cent investment allowance, which allows energy companies to reduce the tax they pay by committing to capital expenditure.
Sunak also said the levy is temporary and would wither away when oil and gas prices return to “historically more normal levels.”
The relief package will drive the UK government’s borrowing to above £100 billion this year, upsetting moves to bring public finances under control. Weaker than expected growth will also rob him of tax receipts, while higher inflation and interest rates will raise debt servicing costs.
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