- The vast majority of households will receive £550
- Pensioners will receive £850
- Almost all of the eight million most vulnerable households in the country will, in total, receive support of at least £1,200
- Ofgem expects the energy price cap to rise in October to £2,800. That’s an average increase in people’s bills this year of just under £1,200
“The oil and gas sector is making extraordinary profits. Not as the result of recent changes to risk-taking or innovation or efficiency. But as the result of surging global commodity prices – driven in part by Russia’s war,” the Chancellor of the Exchequer Rishi Sunak said in a speech today, in the run-up to his announcement that the Treasury would be taxing oil and gas producers a one-off levy to help fund consumer energy bills in the face of rising energy costs.
Here’s how he plans to distribute the funds and also give tax incentives to those oil and gas companies that invest back in the UK economy:
Rishi Sunak has said that he is introducing a temporary, targeted, Energy Profits Levy. For those working in the oil and gas sector, you might be concerned if this will affect jobs. It’s unlikely because built into the level is a new Investment Allowance, similar to the super-deduction, which 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%.
“It will be temporary, and when oil and gas prices return to historically more normal levels, the Levy will be phased out – and with a sunset clause written into the legislation,” Chancellor Sunak explains.
He continues: “And, crucially, with our new investment allowance, we are nearly doubling the overall investment relief for oil and gas companies. This means that, for every £1 a company invests, they’ll get back 90 per cent in tax relief. So the more a company invests, the less tax they will pay.”
Why are oil and gas company profits so high?
Certain parts of the electricity generation sector are making extraordinary profits. The reason for this is the way the market works. For example, the price electricity generators are paid is linked not to the costs they incur in providing that electricity…but rather to the price of natural gas – which is extraordinarily high right now.
Do other countries have energy profit levies?
Other countries like France, Italy, Spain, Portugal and Greece have already taken measures to correct this in the form of windfall taxes.
Who will get help?
The levy will raise £5bn in revenue over the next year so that the taxes can go to families to help with the cost of living. Those to receive help will include those on the lowest incomes, pensioners, and disabled people.
First, people on the lowest incomes will receive the funding. Over eight million households already have incomes low enough for the state to be supporting their cost of living through the welfare system.
They could be temporarily unemployed and looking for work. Unable to work because of long-term sickness or disability. Or on low pay and using benefits to top up their wages.
The levy will pay directly to around eight million of the lowest-income households, a one-off Cost of Living Payment of £650.
Support worth over £5bn to give vulnerable people certainty that we are standing by them at this challenging time.
When will payments be made?
DWP will make the payment in two lump sums – the first from July, the second in autumn, with payments from HMRC for those on Tax Credits, following shortly after.
“There is no need for people to fill out complicated forms or bureaucracy – we will send the payment straight into their bank accounts,” said Sunak.
The policy will benefit over eight million households in receipt of means-tested benefits, from July.
Uprating the same benefits by 9% would only be worth, on average, £530.
There are two further groups that will need targeted extra support. Many pensioners are disproportionately impacted by higher energy costs.
They can’t always increase their incomes through work. And, because they spend more time at home, and are more vulnerable, they often need to keep the heating on for longer.
And we estimate many people who are eligible for Pension Credit are not currently claiming it, which means there will be many vulnerable pensioners not receiving means-tested benefits.
From the autumn, the Treasury will send over eight million pensioner households who receive the Winter Fuel Payment – an extra, one-off Pensioner Cost of Living Payment of £300.
Disabled people also face extra costs in their day-to-day lives – like having energy-intensive equipment around the home or workplace. There will be an extra, one-off Disability Cost of Living Payment, worth £150.
“Many disabled people will also receive the payment of £650 I have already announced, taking their total cost of living payments to £800. And I can reassure the House that next year, subject to the Secretary of State’s review, benefits will be uprated by this September’s CPI, which on current forecasts, is likely to be significantly higher than the forecast inflation rate for next year,” says the Chancellor.
Similarly, the triple lock will apply to the state pension.
The Chancellor says that the Treasury recognises the risk that, as with any policy, there may be small numbers of people who fall between the cracks.
For example, it is not possible right now for DWP or HMRC to identify people on Housing Benefit who are not also claiming other benefits. So, to support them and others, the government will extend the Household Support Fund, delivered by Local Authorities, by £500m from October.
The new levy is in addition to the Council Tax rebate of £150 and the plan to provide all households with £200 off their energy bills from October, with the cost which was to originally be repaid over the following five years to be cancelled.
“So, for the avoidance of doubt, this support is unambiguously a grant. And furthermore, I have decided that the £200 of support for household energy bills will be doubled to £400 for everyone,” he confirmed.