North Sea oil and gas operators including BP hit back at Rishi Sunak’s £5bn windfall profits tax on the industry, warning it was a “multi-year” attack on its profits that would “drive away investors” and cut production .
Sunak has set his sights on “extraordinary” profits from the energy industry to help pay for a £15bn package to help British households cope with rising domestic fuel bills, to the dismay of oil bosses and right-wing Conservative MPs.
After repeatedly rejecting Labour’s calls for a windfall profits tax, Sunak announced a 25 per cent “energy profits tax”, raising the rate paid by North Sea producers from 40 per cent to 65 per cent, raising £5bn this year.
The chancellor’s announcement in the fine print that the windfall will run until December 2025 has caused dismay in the industry – unless at the same time oil and gas prices “return to more normal levels in history”.
“Today’s announcement is not a one-time levy, but a multi-year proposal,” BP said. “Of course, we now need to look at the impact of the new levy and tax relief on our North Sea investment plans.”
BP Chief Executive Bernard Looney was partly responsible for the move, a senior administration official said, after saying this month that the windfall would not affect his company’s investment plans.
The government official argued that Johnson felt he could no longer stand up against the windfall tax after comments from the BP boss. “It’s a game changer.”
Meanwhile, the chancellor also said he was considering “appropriate measures” to target “excess profits” Made by generator. A windfall tax on the industry could bring in an additional £3bn to £4bn.
Business Secretary Quasi Kwarten is one of the senior Conservatives who oppose windfall taxes, while Conservative MP Richard Drax said Sunak was “throwing red meat at the socialists”.
Sunak had previously said he was determined to start cutting taxes and reducing the deficit, but his £15bn energy relief package was funded by higher business taxes and £10bn in extra borrowing.
Labour claims altar stole its idea. However, the chancellor expects to raise more than double the £2bn Labour proposes to raise through the windfall tax, as will his support for families.
Sunak is determined to ease the pain of households facing an £800 rise in energy price caps (the highest amount a household pays on average) in October, when bills are expected to hit £2,800.
The chancellor has made a “universal offer” of £6bn to all households. He replaced the proposed £200 one-off repayable energy bill discount with a £400 grant that does not need to be repaid.
Economists say switching repayable loans into grants to households worth £6bn will force the government to borrow more as it won’t get the money back for another five years.
Much of Sunak’s support went to the poorest, including a one-off £650 living cost to the 8 million households already on state benefits, costing £5 billion.
Pensioners will get an extra £300 winter fuel payment, worth £2.5bn, while disabled people will receive an extra £150, worth £1bn. Sunak said the most vulnerable families would get an extra £1,200.
Sunak insisted a “pragmatic and compassionate” Conservative government had an obligation to help the disadvantaged, and he defended the windfall tax.
Shell said Sunak’s proposed investment tax relief was “a key principle of the new levy” but stressed the “importance of a stable environment for long-term investment”.
Sunak said the Conservative chancellor must “take fiscal responsibility” and if more spending is needed, he must “fund it as much as possible in the fairest way possible” rather than increasing borrowing and fuelling inflation.
While cutting energy bills could lower peak inflation later in the year, the massive stimulus is seen as inflationary with unemployment at a near 50-year low.
Samuel Tombs of Pantheon Macroeconomics described the plan as “huge” and said it gave the Bank of England more reason to raise interest rates this year.