Help for households
Johnson agrees to windfall tax in cost of living deal
UPDATE 25 MAY: Boris Johnson has surrendered to pressure for a windfall tax on energy companies as part of a multi-billion pound package of measures to help ease the cost of living.
Chancellor Rishi Sunak is expected to announce help for those struggling to pay household energy bills, including a cut in VAT, which has become more pressing after the head of regulator Ofgem announced that the average bill is due to rise by a further £800 in October to £2,800.
On top of April’s increase, it means the average energy bill will more than double this year.
Mr Sunak will scrap plans for a “rebate and clawback scheme” that would have given people a £200 discount on their energy bills from October. Instead he will convert the loan into a grant to be distributed by energy companies, with no requirement for people to pay the money back.
Downing Street sources have indicated that the package will cost about £10 billion, partly offset by a windfall tax on the profits of oil and gas companies.
Mr Johnson’s decision to join Mr Sunak’s support for a windfall tax represents a defeat for Downing Street and those Cabinet members who supported the industry’s case for retaining profits in order to invest in clean technologies.
According to The Times, a compromise has been reached which will see companies taxed less if they invest more in the UK and “substantial safeguards” put in place to protect investment.
The industry has been campaigning ferociously against a windfall tax but Bernard Looney, BP’s chief executive, has indicated that such a levy would not deter his company from investing in Britain.
Rumours of the windfall tax, and suggestions in the Financial Times that electricity generators could also be hit, swirled around the City all day and caused share prices to fall.
It is thought a government announcement confirming the new measures could be made on Thursday ahead of Westminster’s half-term break.
Energy industry analysts say that conceding to calls for a windfall tax is a populist move to win over voters rather than a measure designed on sound economics.
Russ Mould, investment director at AJ Bell, said: “The Government wants to raise money to help households hit by a sharp rise in energy bills.
“While it is right that some support should be given to those most in need during these difficult times, the way in which new funds are raised means the Government runs the risk that energy companies slow down investment in new green projects which could make it harder for the country to hit its net zero emissions targets.”
Opposition MPs believe Mr Johnson is cobbling together a cost of living package as a way of saving his skin ahead of the expected publication of civil servant Sue Gray’s report into lockdown-breaking parties in Downing Street and the latest photographic evidence of the Prime Minister’s attendance at one such event.
Staff told a TV documentary that they felt the Prime Minister condoned the parties by attending himself and one expressed disbelief when he denied they took place.