Rishi Sunak presses the button on a controversial extraordinary tax on energy companies on Thursday, while laying down measures to alleviate the pain of rising household bills.
The chancellor has confirmed that he will announce new support for people struggling with the cost of living crisis. Measures are expected to help poorer households as rampant inflation raises the price of everything from food to fuel.
Sunak is expected to announce an increase in the discount program for warm homes, which is worth between £ 150 million and £ 3 million for low-income households. That figure could reach £ 500.
The government could also anticipate a projected increase in profits next year. Sunak could also choose to directly fund a discount on energy bills or offer a city tax rebate.
The measures will be funded in part by an unexpected tax on energy companies, following a fierce battle within the government over politics, which has been harshly opposed by some cabinet ministers, including business secretary Kwasi Kwarteng. . The measure could be extended to all electricity generators and could include investment exemptions.
A senior party official admitted that the decision had caused divisions in the government. “The arguments have been rigorously tested both within the Treasury and within the government and there is a lot of pressure to make sure the gain is worthwhile and not jeopardize the investment,” they said.
“We do not want to introduce random taxes that make the environment unpredictable for global companies that can go anywhere. We need to set the bar high and do something really impressive and put massive security measures in place to make sure we don’t jeopardize our investment. “
The U-turn of the Extraordinary Profit Tax will be seen as a victory for the work of Keir Starmer, who has long called for this measure. The Conservative official said he would draw a clear dividing line.
“For the Conservatives, raising taxes is a way to end the funding of public services and help those who cannot be avoided. So the focus of any package will be on what we can do to help people who are suffering, “they said.
“There will be a new package that will have an explanation of where some additional funds will be acquired … It will be really impactful and complete.”
Oil and gas producers have benefited from rising world energy prices during Russia’s war in Ukraine. Rising gas prices have pushed up wholesale prices across the electricity market, including some renewable and nuclear power producers.
The Treasury has reportedly considered whether the tax should be extended beyond North Sea operators such as BP and Shell to generators, including renewable energy operators such as wind farms.
It is estimated that the plan could tax more than £ 10bn in excess of profits, although city analysts said the figure was well above its estimates. The single-rate work plan applied to North Sea oil and gas producers alone would raise about £ 2bn.
A Treasury spokesman said: “We understand that people are struggling with rising prices, so we have provided £ 22 billion in support so far. The chancellor was clear that as the situation evolves, so will the our response, the most vulnerable being its number one priority “.
Economists say the cost of living in the UK’s poorest households is expected to rise by almost twice as much as that of the richest when energy bills rise this fall.
The Institute for Tax Studies (IFS) said the new increase in gas and electricity bills expected in October could lead to average annual inflation rates of up to 14% for a tenth of households more poor.
The energy crisis centered this week when Jonathan Brearley, chief executive of energy regulator Ofgem, indicated that the energy price cap would rise by another £ 830 to almost £ 2,800 in October.
The increase is likely to disproportionately affect poorer families because a larger share of their total spending goes to energy. The IFS said the 10th poorest of households typically spends nearly three times their budget on gas and electricity than the 10th richest.
This means that low-income households are experiencing a much higher rate of inflation than wealthy ones. The IFS predicts that while inflation for those within reach will reach 14% this fall, the richest 10th could see rates of about 8%. In all households, inflation is likely to reach 10%, the highest rate since 1982.
As a sign of growing pressure on households, Wednesday’s figures showed that average petrol prices hit a new record high of 170.4 liters per liter, up from 129 a liter a year ago. Diesel rose to 181.4p, up from 131.3 a year earlier.