London, (Asian independent) The UK announced that it will impose a 25 per cent levy on the profits of oil and gas companies, to ease the financial burden on millions of households amid raging inflation.
As a temporary policy, the tax would be phased out “when oil and gas prices return to historically more normal levels”, with a sunset clause written into the legislation, Xinhua news agency quoted Chancellor Rishi Sunak as saying at the House of Commons on Thursday.
The levy was first proposed by the opposition Labour party, but the government did not express much support for it.
However, Sunak has said on several occasions that nothing was off the table in the face of the worsening cost-of-living crisis.
Currently, the oil and gas sector pays a 40 per cent headline rate tax on profits, making it among the UK’s most highly-taxed industries. The new levy takes the combined rate of tax on profits to 65 per cent.
Sunak said on Thursday the levy “will encourage investment, not deter it”.
He added that the government is doubling overall investment relief for oil and gas companies, which means that “for every one pound a company invests, they’ll get back 90 per cent in tax relief”.
This change in attitude came after some energy giants posted bumper earnings, as global energy prices soared. BP reported in early May that its underlying profit for the first quarter of this year had seen a huge increase, to $6.2 billion from $2.6 billion, during the first three months of 2021.
The extraordinary profits being made by the oil and gas sector are not “the result of recent changes to risk taking or innovation or efficiency, but as the result of surging global commodity prices”, the Chancellor underlined.
The levy should raise around five billion pounds in revenue over the next year “so that we can help families with the cost of living”, without having to increase the government’s debt burden, he said.
The government will send a one-off payment of 650 pounds directly to around 8 million of the lowest income households in July and in the autumn, which is worth over 5 billion pounds in total.
From the autumn, Sunak added, the government will send an extra, one-off payment of 300 pounds to more than 8 million pensioners to help pay for heating costs.
Six million people who receive non-means-tested disability benefits will also receive an extra, one-off payment worth 150 pounds from September.
In recent months, British consumers have witnessed the highest price rises in decades. Since inflation rose by 9.0 per cent in the 12 months to April 2022, up from 7.0 per cent in March, the Bank of England expects it to rise further to average at slightly over 10 per cent at its peak by the end of this year.
