North Sea oil and gas operators including BP have hit back at Rishi Sunak’s one-off £5billion tax on the sector, warning it was a ‘multi-year’ assault on their profits which would “drive investors away” and reduce production.
Sunak has turned to ‘amazing’ profits in the energy sector to help pay for a £15billion package to help UK households cope with rising household fuel bills, at large disarray of oil bosses and right-wing Conservative MPs.
After repeatedly rejecting Labour’s call for a windfall tax, Sunak announced a 25% “energy profits tax” that will increase the rate paid by North Sea producers from 40% to 65%, raising £5bn this year.
The Chancellor caused consternation in the sector by announcing in fine print that the windfall tax would remain until December 2025 – unless oil and gas prices “return to historically more normal levels” in the meantime. weather.
“Today’s announcement is not a one-time tax – it’s a multi-year proposal,” BP said. “Naturally, we will now have to consider the impact of both the new levy and the tax relief on our investment projects in the North Sea.”
A senior government official said Bernard Looney, chief executive of BP, was partly to blame for the decision, after saying this month that a windfall levy would not affect his company’s investment plans.
The government official argued that Johnson felt he could no longer hold the line against a windfall tax after comments from the BP boss. “It was a game-changer.”
Meanwhile, the Chancellor also said he was considering “appropriate measures” to target the “extraordinary profits” made by power producers. An exceptional tax on this sector could bring in an additional 3 to 4 billion pounds.
Business Secretary Kwasi Kwarteng was among senior Tories to oppose a windfall tax, while Tory MP Richard Drax said Sunak was “throwing red meat at socialists”.
Sunak had previously said he was determined to start cutting taxes and cutting the deficit, but his £15billion energy aid package was funded by higher business taxes and £10billion of additional loans.
Labor claimed Sunak stole his ideas. However, the Chancellor expects to raise more than double the £2billion offered by Labor via a windfall tax and he has offered twice as much support for households.
Sunak was determined to ease the pain of households facing an £800 energy price cap increase – the average maximum amount paid by a household – in October, when bills are expected to hit £2,800.
The Chancellor has made a ‘universal offer’ of £6billion to all households. It replaced a one-off £200 refundable rebate proposal on energy bills with a £400 grant, which will not have to be repaid.
Economists said converting the repayable loan into a grant to households worth £6billion would force the government to borrow even more as it would no longer get the money back over five years.
The bulk of Sunak’s support went to the poorest, including a one-time cost of living payment of £650 to 8million households already receiving state benefits, at a cost of £5billion.
Pensioners will receive an additional payment of £300 for winter fuel at a cost of £2.5bn, while disabled people will receive an additional payment of £150 at a cost of £1bn . Sunak said the most vulnerable households would receive an additional £1,200.
Sunak insisted that a “pragmatic and compassionate” Conservative government was obligated to help the vulnerable and he defended the windfall tax.
Shell said Sunak’s proposed tax relief on investments was “a core principle of the new levy”, but stressed “the importance of a stable environment for long-term investment”.
Sunak said a Tory Chancellor should be “fiscally responsible” and if more spending was needed he should “fund as much as possible in the fairest way possible”, rather than increasing borrowing and funding inflation.
Although lower energy bills may reduce the peak rate of inflation later this year, this significant stimulus was seen as inflationary at a time when unemployment is at its lowest level in nearly 50 years.
Samuel Tombs of Pantheon Macroeconomics described the package as “heavy” and said it gave the Bank of England yet another reason to raise interest rates this year.