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Rishi Sunak has said the inflationary impact of his cost-of-living spending spree will be ‘manageable’ as he unveiled a £21billion giveaway to help families amid the crisis.
Despite warnings of a sting in the tail of higher taxes and borrowing, the Chancellor said every household would get £400 off energy bills. The neediest will pocket as much as £1,500.
He also imposed a £5billion windfall tax on oil and gas giants, while the rest of the spending package will be paid for by borrowing.
Mr Sunak declared the Government would never ‘sit idly by while there is a risk that some in our country might be set so far back they might never recover’.
And he said the measures were more generous than those sought by Labour.
Mr Sunak acknowledged his spending spree could have an ‘inflationary impact’ but insisted it was ‘manageable’ because most of the cash was directed toward people who would otherwise struggle to pay their bills.
He insisted the package did not breach his adherence to ‘responsible fiscal policy’.
Despite warnings of a sting in the tail of higher taxes and borrowing, the Chancellor said every household would get £400 off energy bills. The neediest will pocket as much as £1,500
The measures came just days after energy regulator Ofgem announced that the energy price cap was on course to hit £2,800 in the autumn – more than double the level a year ago.
Former minister Robert Halfon called the package an example of ‘compassionate Conservativism’ but fellow Tory MPs urged the Chancellor to cut taxes rather than deliver handouts.
‘The best way to help people is to lower the tax burden,’ said Sir Edward Leigh.
David Davis, a former Brexit minister, warned a windfall tax might cost more than it raised if it drove off investment.
All 28million households in England, Scotland and Wales will get a £400 discount on their energy bills this winter, funded by the state.
But pensioners, the disabled and those on low incomes are in line for even more.
Around 8.3million families on benefits will qualify for a £650 cost of living payment while all pensioner households will receive an extra £300 this winter to help them with energy bills.
And six million disabled people will get additional payments worth £150.
Rishi Sunak said he is following in the footsteps of previous Conservative governments – including Margaret Thatcher’s – by imposing a windfall tax
The Treasury confirmed that a disabled pensioner on benefits would be in line for a potential total of £1,500 of support this year as a result of yesterday’s package.
A £150 council tax discount for some households announced in March takes the total support to a maximum of £1,650.
Levy puts BP’s £18bn investment plan in doubt
By Calum Muirhead City Correspondent for the Daily Mail
BP may rethink investment plans following news of the windfall tax on energy firms, the company suggested last night.
The threat throws into doubt its promise this month to invest up to £18billion in Britain by the end of 2030.
Rishi Sunak’s 25 per cent levy tax on oil and gas firms was expected to be a one-off, but he said it would remain until 2025.
BP said: ‘We know just how difficult things are for people across the UK and recognise the Government’s need to take action.’
But it added: ‘Today’s announcement is not for a one-off tax – it is a multi-year proposal. Naturally we will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans.’
Offshore Energies UK (OEUK), a trade body for the British offshore energy industry, said the tax was ‘a backward step’ and warned it would ‘discourage UK offshore energy investments’ and increase the country’s reliance on oil and gas imports.
Chief executive Deirdre Michie added: ‘This is a disappointing and worrying development for industry, the shockwaves of which will be felt in offshore energy jobs and communities, and by consumers, for years.’ Rain Newton-Smith, chief economist at the Confederation of British Industry, said: ‘It sends the wrong signal to the whole sector at the wrong time against a backdrop of rising business taxation elsewhere.’
Derek Leith, oil and gas tax expert at accountant EY, said it was ‘worse than many may have anticipated’. Mark Littlewood, director general of the Institute of Economic Affairs think-tank, said is was ‘a policy victory for Labour’, adding that the Tories’ default setting was now ‘to respond to virtually any problem by increasing taxes’.
The moves came as:
- Mr Sunak announced that pensions and benefits would rise next year in line with the inflation rate this September, which is expected to be close to 10 per cent;
- The Treasury revealed the new windfall tax could stay in place for three years, triggering speculation that extra support would be brought forward if bills stayed high;
- The Chancellor dismissed claims that the measures had been fast-tracked to move the political agenda on from Partygate;
- Mr Sunak said the windfall tax could be extended to other parts of the electricity sector, such as wind farms and nuclear, because of their ‘extraordinary profits’;
- The Treasury confirmed that owners of second homes would receive the £400 energy discount for each of their properties, potentially benefiting many MPs;
- BP suggested it could rethink its UK investment plans in light of the levy;
- Green campaigners condemned a decision to offer tax breaks for firms investing more in North Sea oil and gas production;
- Treasury sources said the Chancellor would donate his £400 rebate to local charities in his North Yorkshire constituency.
Boris Johnson has warned that providing more support risked an ‘inflationary spiral’ by pumping more cash into the economy.
Some Tory MPs called for tax cuts, and questioned the decision to borrow billions of pounds to give away at a time of soaring inflation.
South Dorset MP Richard Drax accused the Chancellor of ‘throwing red meat to socialists by raising taxes on businesses and telling them where to invest their money’.
Former leader Sir Iain Duncan Smith described the package as a ‘good start’ but said the Chancellor should also start to address the ‘burden of taxation’ which stands at a record level.
Mr Sunak said he would normally agree that cutting tax was the best approach but added that ‘given the types of people we are trying to help, I believe that direct cash transfers are the right way, rather than going through the tax system’.
The Chancellor’s decision to impose a windfall tax came despite opposition from senior figures in Downing Street and a string of Cabinet ministers including Business Secretary Kwasi Kwarteng and Health Secretary Sajid Javid.
The policy has been championed by Labour for months.
But Mr Sunak rebranded his proposals as an ‘energy profits levy’ – and said his £5billion scheme was much better designed than Labour’s £2billion proposal.
The new tax will hit firms including BP and Shell, which have enjoyed massive profits on the back of soaring oil and gas prices.
It will levy a 25 per cent surcharge on profits from the North Sea, taking the total tax rate there to 65 per cent. It is due to stay in place until the end of 2025 unless oil and gas prices return to ‘historically more normal levels’.
Labour Shadow Chancellor Rachel Reeves said Mr Sunak had been dragged ‘kicking and screaming’ into a U-turn.
But Mr Sunak said the ‘pragmatic’ decision was justified by the ‘extraordinary’ profits the energy giants were making as a result of the impact of the war in Ukraine on global energy process.
‘Being able to change course is not a weakness, it’s a strength,’ he told MPs in the Commons.
The Chancellor defended the decision to target most help to those on low incomes, saying that the Government had to ‘make sure that those for whom the struggle is too hard, and for whom the risks are too great, are supported’.
Paul Johnson, director of the Institute for Fiscal Studies, said the package announced by Mr Sunak meant that ‘on average the poorest households will now be approximately compensated for the rising cost of living this year’.
The CBI acknowledged the need to help families through ‘one of the worst cost of living crunches in recent memory’, but warned that the windfall tax sent ‘the wrong signal to the whole sector at the wrong time against a backdrop of rising business taxation elsewhere’.