Rishi Sunak announces stormfall tax on oil and gas companies and a £650 subsidy for low-income families – UK politics lives | Politics

Sunak confirms the stormfall tax’s about-turn – while calling it ‘temporary targeted energy surplus tax’

Sunak says households are being hit hard now.

The government will provide significant support,” he said.

Since it supports people more, it needs to think about the fairest way to fund it.

The oil and gas sector is making extraordinary profits, not because of added risk appetite or efficiency, but because of rising energy prices. So he has sympathy for the cause of taxing those profits fairly.

Labour MPs are scoffing loudly. Dame Eleanor Laing, the vice-president, asks for “calmer teasing”.

Sunak says there is a middle ground. He will impose a tax, but with an incentive for companies to invest.

The new measure will be the “temporary targeted energy surplus tax”, he says.

This euphemism for stormfall tax creates loud laughter.

It will be set at 25 percent and temporary,” he said. He says there will be a sunset clause in the bill.

And companies that invest will get tax breaks on 90% of their investments.

UPDATE: Sunak said:

Like previous Governments, including Conservatives, we will introduce a temporary targeted energy surplus tax, but we have built into the new levy… a new investment allowance similar to the super deduction, which means that companies will have a new and significant incentive to reinvest their profits.

The new tax will be levied on the 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 tax will be phased out.

In his statement, Rishi Sunak stressed that his unexpected tax would be temporary. But the CBI criticizes it on the grounds that it can be open. (See 1:50 p.m.)

How can they both be right? In its briefing note, the Ministry of Finance says that although the intention is for the tax to be temporary, it can last three and a half years.

The energy surplus tax shall apply to surpluses arising on or after 26 May 2022. Companies that have an accounting period extending beyond this date must distribute their profits. It is temporary and will be phased out when oil and gas prices return to historically more normal levels. The legislation will also include a sunset clause, which will remove the tax after December 31, 2025.

Sunak’s unexpected tax ‘will be detrimental to investments’, the CBI says.

The CBI, which represents businesses, has said that while support for people with bills is welcome, it is not happy about Rishi Sunak’s plans for a welfare tax. It informs the CBI’s chief economist, Rain Newton-Smith.

Helping people facing real-world difficulties in the midst of one of the worst cost of living in recent memory is the right thing to do.

Despite the investment incentive, the open-ended nature of the energy surplus tax – and the potential to bring electricity generation into scope – will be detrimental to the investments needed for energy security and net-net production.

It sends the wrong signal to the entire sector at the wrong time against the backdrop of rising business taxation elsewhere.

The government needs to work with the business community on a real plan to boost business investment and get growth going again, especially in areas like energy efficiency.

And the British Chambers of Commerce has said there should have been more help for business. This is from Hannah Essex, its co-CEO.

The sheer scale of the cost of living crisis facing the British public means that the government has every right to provide further support to those most affected.

For business, the toxic mix of inflation, commodity costs and supply chain disruptions is the flip side of the coin for the problems facing consumers.

Unless steps are also taken to ease corporate costs, they are likely to contribute to inflationary pressures on the economy and quickly eat into the financial support announced today.

A reduction of VAT to 5% on companies’ energy bills will directly ease some of this pressure to raise prices.

In the House of Commons, Alun Cairns has just highlighted the reaction to Sunak’s statement by Martin Lewis, the consumer champion who created the MoneySavingExpert website. It’s here. In his video, Lewis says it’s “quite a good package” and probably better than he expected.

My instant response video & analysis of the Chancellor’s announcements about energy costs and changes (done quickly). pic.twitter.com/Mcvth3p8we

– Martin Lewis (@MartinSLewis) May 26, 2022

Lewis, who spoke with Sunak on Monday and is doing an online Q&A with him later this afternoon, says Sunak has addressed many of the points he raised with him.

Some of the previous posts have been filled with direct quotes from the speeches of Rishi Sunak and Rachel Reeves. You may need to refresh the page to view them.

Back on Commons Peter Aldous (Con) says he welcomes the measures, but says Rishi Sunak will have to keep the situation under review and consider the matter of “additional measures”, such as a social tariff and special assistance for people on prepayment meters.

This is from Jim Anderson, from the Institute for Fiscal Studies, on the difference between Rishi Sunak’s unexpected tax or “temporary, targeted energy surplus tax” and Labour’s version.

Memo on tax on energy surplus. It differs from Labour’s proposal by being much larger (25% versus 10%) and for 3 years; and with much (arguably excessively) generous investment incentive

– Paul Johnson (@PJTheEconomist) May 26, 2022

These are from John McDonnell, the former shadow chancellor, on Sunak’s announcement.

Despite all the hype, Sunak’s package won’t be enough to meet people’s needs, and I predict we’ll be back here again. He should have announced immediate inflation hedges for benefits, pensions and wages, restore the £20 UC cut and introduce energy, rent and basic food price controls. 1/2

– John McDonnell MP (@johnmcdonnellMP) May 26, 2022

Finally, a stormfall tax, but the tax cuts are going to be a field day for accountants to manipulate. We need an excess profit tax across the economy to tax profiteering, to tax capital gains in the same way as income, and it’s certainly time for a wealth tax on the growing wealth of the wealthiest.

– John McDonnell MP (@johnmcdonnellMP) May 26, 2022

These are from Simon Evans, from Carbon Brief, which says the tax cut that Rishi Sunak announced today will encourage energy companies to invest in oil and gas extraction.

🔥⛽️⛽️⛽️🔥

UK oil and gas tax (sorry, “energy surplus tax”)

That’s a 25 percent increase currently in the existing tax rate on the sector (from 40 to 65%), with relief for increased investment.

Crucially, the relief covers only “British extraction” (i.e. fossil fuels) https://t.co/fDbcyOxUqM pic.twitter.com/54Dv6ETqMe

– Simon Evans (@DrSimEvans) May 26, 2022

So Uk oil and gas companies will be hit by a stormfall tax, which they can largely avoid by increasing investment…

… as long as they invest in the “UK extraction” of more fossil fuels https://t.co/OGxQsiSCP3

– Simon Evans (@DrSimEvans) May 26, 2022

These charts show how much of the help announced today goes to poorer and richer households. They are from the Treasury Distribution Analysis.

As a share of household income, the poorest 10% of households receive almost seven times as much as the average household.

Distributional impact assessment – as % of household income Photo: HMT

In cash, the measures are not quite as progressive, but they still see that the poorest 10% of households get more than double what the richest 40% of households get.

Distrubutional impact assessment - cash view
Distrubutional impact assessment – cash view Photo: HMT

Back on Commons David Duguid, a Scottish Conservative MP says he opposed Labour’s plans for a stormy tax because they were too “punitive”. He says he welcomes the fact that this approach to excess profits is more targeted.

Here is the text of Rishi Sunak’s statement.

And here is the background of the papers of the Ministry of Finance, which were published along with the main press release.

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