Rishi Sunak unveils £5bn windfall tax on oil and gas giants

UK chancellor Rishi Sunak has today confirmed a temporary windfall tax on the profits of oil and gas firms to help with the cost-of-living crisis.

The one-off Energy Profits Levy will be charged on oil and gas company profits at a rate of 25%, and is expected to raise around £5bn in its first 12 months.

The move comes amid surging commodity prices, driven in part by Russia’s war on Ukraine, which have seen energy bills skyrocket and the oil and gas sector enjoy extraordinary profits.

Tax raised will go towards a new support package that will provide every household in the UK with an energy bill discount of £400 this autumn. However, once oil and gas prices return to “historically more normal levels”, the levy will be phased out.

Sunak said: “We have a collective responsibility to help those who are paying the highest price for the high inflation we face. That is why I’m targeting this significant support to millions of the most vulnerable people in our society.

“It is also right that those companies making extraordinary profits on the back of record global oil and gas prices contribute towards this. That is why I’m introducing a temporary Energy Profits Levy to help pay for this unprecedented support in a way that promotes investment.”

Energy regulator Ofgem said earlier this week that a typical household energy bill is set to rise by £800 in October, bringing the total to £2,800 a year.

Ministers have argued that the oil and gas sector must reinvest the extraordinary profits being made from fossil fuel extraction in green jobs and projects in the UK.

In response, today's measures also include a new investment allowance, which will see oil and gas firms get back 91p for every £1 they invest through tax relief.

The share prices of BP and Shell fell after the news, before climbing back up, as investors shrugged off what is expected to be a short lived hit, according to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

She added: “A chunk of profit may still be scooped from the oil and gas majors, but the levy will still represent just the cream on the top of fat volumes of cash being generated by energy giants due to the higher price of oil.”