Sunak Speaks of a U-Turn at last
By Emily Chen
Following months of speculation, Chancellor Rishi Sunak confirmed today that he would be imposing a temporary windfall tax of 25% on oil and gas firms. The expected £5bn to be raised will be used to double the discount on energy bills, provide a £500m increase for the Household Support Fund, and provide up to £1,200 for 8 million of the most vulnerable households. As a result of this announcement, every UK household will get a £400 energy bill discount instead of the initial repayable £200, which should contribute to offsetting the rising cost of living.
There will be tangible benefits for the most vulnerable individuals because of the announcement. However, some have questioned why it took so long for this decision to be put into action. Shadow Chancellor of the Exchequer, Rachel Reeves, was reported to have said that the government had been ‘dragged kicking and screaming’ into the decision and suggested that ‘families had to struggle and worry while he (Sunak) dragged his feet.’ Similarly, Darren Jones MP, Chair of the BEIS Committee, spoke out on Twitter, saying ‘there [was] no reason for delay’ for this announcement.
The windfall tax has the potential to negatively impact oil and gas companies in a plethora of ways. As a result of the tax, oil and gas companies will both be charged an additional (and supposedly ‘completely unexpected’) fee, whilst also suffering from a loss of share value. Prior to the official announcement, Bloomberg reported that speculations meant power plant operator Drax Group Plc shares fell by 19%, the biggest fall in seven years; with Centrica Plc and SSE Plc each losing 11%. Now that the rumours have been confirmed, Morgan Stanley analyst Christopher Laybutt said to expect an ‘elevated volatility’ of UK utilities. It was for reasons such as these that the idea was initially dismissed, with Boris Johnson warning that it could ‘deter’ investment into the UK. Furthermore, Deirdre Michie, chief executive of Offshore Energies UK said that a windfall tax will ‘directly impact manufacturing’, which will ‘undermine our supply chain’ and 'bring about job losses.’
With the World Economic Forum confirming that renewables are the world’s cheapest source of energy; it is likely that the new tax is only going to widen the cost disparity between conventional and renewable energy sources. Considering the recent uptick in consumer support for greener energy resources (as evidenced by crowdfunded onshore wind farms and the rising popularity of residential solar panels), there is every possibility that the tax could help the UK Government reach its goal of net zero by 2030. This is providing that the levy continues to not apply to the electricity generation sector. However, the government fact sheet on the Chancellor’s statement warned that it has noted that some parts of the electricity generation sector have seen ’extraordinary profits’ due to record gas prices, so there may be a tax burden placed upon them soon.