With an emergency plan, Britain’s finance minister wants to support needy households with their drastically increased energy costs. Rishi Sunak uses a special tax on profits from the oil and gas industry for financing, which he himself has long rejected and which is controversial in the cabinet.

The tax should bring in around five billion pounds (around 5.9 billion euros) and help finance far-reaching financial relief for poorer households. Among other things, welfare recipients will receive a one-off payment of £650. A previously announced £200 loan for energy bills will be doubled and turned into a non-repayable grant.

For weeks, experts have been pointing out the considerable cost pressures that a growing proportion of the British population is suffering from. Energy prices are not the only thing that have skyrocketed. Inflation was nine percent in April, the highest level in 40 years. Further increases are expected. The Bank of England expects a double-digit figure for the autumn.

Other Western industrial nations have also been feeling the effects of sharply rising prices for months. In an international comparison, however, Great Britain had so far done relatively little to relieve the weakest households. Finance Minister Sunak had been repeatedly criticized for this since his budget speech in the spring. He has now responded to this criticism with his “economic update”.

In parliament, Sunak referred to the “extraordinary profits” that oil and gas producers have realized in recent months and which are not due to their willingness to take risks, innovation or efficiency, but to the commodity prices. A “temporary, targeted energy profit tax” of 25 percent will therefore be introduced on an interim basis.

It is set to be phased out as oil and gas prices return to lower levels seen in the past.

Companies can recoup part of the fee by investing in energy production and infrastructure. A tax reduction of 80 percent applies to these expenses. In a next step, the higher profits of the power generators could also be subject to a levy.

“We are consulting with the power generation industry on market reforms that will ensure that the price of power generation better reflects the cost of production,” Sunak said. But that takes time. In the meantime, in view of the high profits here, too, the right transition steps would be discussed.

Sunak had long resisted a special tax that the opposition Labor Party had repeatedly called for since the beginning of the year. In February, he admitted that the solution might sound attractive at first glance, but that the government was dealing with the complex problem responsibly.

“The obvious effect of a tax on extraordinary corporate profits is to discourage investment – it’s as simple as that.” Conservative MPs voted against a special tax just last week.

Sunak’s announcement today is also an attempt by the government to put the scandal behind the lockdown parties at Prime Minister Boris Johnson’s residence. It was time to look ahead, Johnson and his ministers said after the devastating verdict in an investigation report.

The bottom line is that Sunak has boosted household support for higher energy bills by £15billion with the announced measures. It specifically benefits particularly needy households. “That is significant and very welcome,” commented Torsten Bell, head of the Resolution Foundation think tank.

In addition to the £650 bonus for eight million Brits on social security benefits, pensioners who already receive a heating subsidy today and people with disabilities will receive special allowances. Overall, the country is now making £37 billion available to help ease the significantly higher cost of living, Sunak said. He also held out the prospect that social security benefits would be raised in line with inflation in the fall.

Then the already tense situation will worsen for many households. Jonathan Brearley, head of Ofgem, the regulator of the energy industry, recently announced another increase in the cap on household electricity and gas bills. As things stand, an average household will pay £2,800 (€3,286) after the next adjustment due from October. A year earlier the cap had been 1277 pounds.

With the cap, the regulatory authority is setting an upper limit that energy suppliers are allowed to charge an average household for gas and electricity. In view of the gas prices, which have risen drastically in recent months, cheaper tariffs are practically no longer offered.

“The price hikes we’ve seen in the gas market are truly once-in-a-generation events that we haven’t seen since the oil crisis of the 1970s,” Brearley said.

The think tank Resolution Foundation assumes that after the price increase in autumn 9.6 million households in the country suffer from energy poverty, i.e. spend more than ten percent of their disposable income on electricity and gas and often have to decide whether to heat with their money or eat. In around two million households, a fifth of the income is likely to be spent on the energy bill.

The news of the special tax was received calmly on the stock exchange. Stocks of BP and Shell, which are the most affected, fell on the announcement but rebounded in less than an hour.

Dividend payments are likely to be lower, said Susannah Streeter, an analyst at Hargreaves Lansdown. At the same time, however, many investors should welcome the tax breaks for investments, which should lead to an increased focus on sustainable technology. “A chunk of profit should still be siphoned off by the big oil and gas companies, but the levy will still be just the icing on the fat sum of money the energy giants are raking in thanks to higher oil prices.”

Shares in retail companies benefited from this. Here, according to the analyst, there is hope that the financial commitments will fuel consumers’ recently weakened buying mood.

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