Australia markets closed
  • ALL ORDS

    7,324.90
    +36.10 (+0.50%)
     
  • AUD/USD

    0.7025
    -0.0099 (-1.39%)
     
  • ASX 200

    7,064.30
    +31.80 (+0.45%)
     
  • OIL

    87.15
    -4.94 (-5.36%)
     
  • GOLD

    1,798.80
    -16.70 (-0.92%)
     
  • BTC-AUD

    34,344.43
    -772.30 (-2.20%)
     
  • CMC Crypto 200

    572.52
    +1.24 (+0.22%)
     

Rishi Sunak unveils £15bn aid to help UK households struggling with rising energy bills

·Business Reporter, Yahoo Finance UK
·6-min read
Chancellor of the Exchequer Rishi Sunak
Rishi Sunak has revealed a windfall tax on oil and gas companies such as Shell and BP. The amount companies pay will be linked to how much they invest. Photo: Daniel Leal/ WPA Pool/Getty Images

Chancellor Rishi Sunak has unveiled a £15bn package to help alleviate the strain on household energy bills, funded partly by a controversial windfall tax on gas and oil giants.

He revealed in the House of Commons on Thursday that more than 8 million households on the lowest income will now get £650 to help them with rising energy bills. This support will be worth £5bn.

Sunak said the current cost of living situation was "simply unacceptable" and that the government would never allow people to be left destitute.

In addition to this, he said that 8 million pensioner households will get a one-off payment of £300, as well as a one-off £150 payment for people receiving disability benefits. People in this group will also get the £650 for those in lowest income.

Sunak said support for people on low incomes will be worth £9bn, and will reach a third of UK households.

Read more: What is a windfall tax?

British households in the “squeezed middle” will also receive help.

Sunak added that the £200 announced in February to help people with their energy bills will be increased to £400. And this will not longer be a loan to be repaid over five years. It will be a grant, he said.

The chancellor said the total value of the support announced this Thursday will be £15bn. Combined with previous measures, this means the total sum is £37bn, or around 1.5% of GDP.

The vast majority of households will receive £550. Pensioners will receive £850 and the most vulnerable households will get £1,200, he said.

Paul Johnson, director of the Institute for Fiscal Studies, welcomed the measures announced. "Big, expensive package from Rishi Sunak. In conjunction with tax rises already in place this is hugely redistributive – taking from high earners and giving to the poor," he said.

Meanwhile, the Institute for Public Policy Research (IPPR) also welcomed the steps taken to protect the poorest families, but said more was needed.

Read more: How £15bn support package will cut every energy bill by at least £400

"Is the support offered a sticking plaster or a safety net?" Rachel Statham, IPPR associate director for work and the welfare state, said.

"This is a living standards crisis of historic proportions - and those on the lowest incomes are most exposed. We need to see support that can keep families afloat not just this year, but into the future. Today’s measures offer temporary relief, but any long-term solution must ensure our social safety net is fit for purpose."

To fund the move, the finance minister revealed a windfall tax, which he phrased as a temporary targeted energy profits levy, on oil and gas companies such as Shell (SHEL.L) and BP (BP.L).

The amount companies pay will be linked to how much they invest. It was confirmed to be a 25% levy for a limited time, and will include a new investment allowance. The tax will be phased out when profits return to normal.

Due to the war in Ukraine, oil and gas producers have vastly benefited from soaring global energy prices as everyday consumers struggle with bills.

Sunak told MPs that the oil and gas sector was making "extraordinary profits" not thanks to innovation, but surging global commodity prices.

He said that he was sympathetic to the idea of a tax, but that there's a "sensible middle" ground.

It was only a few months ago that Sunak warned that a windfall tax on energy companies would damage crucial investment in the North Sea.

Michael Hewson of CMC Markets said the move would be “politically popular” but that it could have “wider unexpected and negative consequences further down the line when it comes to encouraging business to invest in the UK”.

Read more: 1 million pensioners risk missing out on Sunak’s one-off £650 payment

The package has been agreed with prime minister Boris Johnson, who is looking to move headlines back to policy and away from the “partygate” scandal that has taken over Westminster, including calls for his resignation.

He added: “The package…is also likely to be a welcome distraction for the government in the wake of the furore over the Sue Gray report over gatherings and parties at Number 10 and the Cabinet Office.

“It would also be seen as a political win for the opposition parties who have been campaigning for such a move for weeks now. Either way it would be the latest example of a government reacting to events, rather than shaping them.”

It also comes as energy regulator Ofgem said this week that the energy price cap would rise by another £800 in October. This would mean average annual household energy bills would be £2,800.

Energy bills are set to soar again. Chart: Yahoo UK
Energy bills are set to soar again. Chart: Yahoo UK

Responding to Sunak’s announcement, shadow chancellor Rachel Reeves said that the chancellor had been “dragged kicking and screaming” to the idea of a windfall tax on oil and gas producer profits.

“There couldn’t be a more appropriate illustration of this Conservative government’s lacklustre, out-of-touch approach to managing our economy – arriving at the common sense solution months too late,” she said.

Labour has long called for a windfall tax, and put pressure on the chancellor to do so in recent weeks.

Ms Reeves said it was clear who was "winning the war of ideas".

Watch: Why are gas prices rising

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting