Chancellor announces “energy profits levy”

Built into the so-called “energy profits levy” will be a new investment allowance, designed to incentivise oil and gas companies to reinvest their profits. The policy will mean for every pound a company invests, it will get 90% back in tax relief. 

This investment incentive, according to Hargreaves Lansdown senior investment and markets analyst Susannah Streeter, is likely to result in an “acceleration of investment” by BP and Shell, a strategy welcomed by many investors who see environmental progress as crucial for their long term growth prospects. 

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. 

“A barrel of Brent crude, the international benchmark, has edged higher to just shy of $115. It is up by around 50% since the start of the year, pushed higher by the outbreak of war in Ukraine.” 

The government’s energy profits levy comes as part of a raft of measures announced today (26 May) by the treasury. All UK households will get £400 of support with their energy bills through the expansion of the Energy Bills Support Scheme - doubling the £200 of support announced earlier this year. 

The £400 payment will now be made as a grant, which will not be recovered through higher bills in the coming years, as was previously proposed. 

Energy suppliers will deliver this to households with a domestic electricity meter over six months from October. Direct debit and credit customers will have the money credited to their account, while customers with pre-payment meters will have the money applied to their meter or paid through a voucher. 

In addition to this, more than eight million households on means-tested benefits will receive a payment of £650 this year - made in two installments, first in July and the second in the autumn. The payment will be tax-free and will not count towards the benefit cap. 

Pensioners, meanwhile, will receive an extra £300 this year - with this support going to those pensioner households who receive the winter fuel payment and will be paid on top of any other one-off support a pensioner household is entitled to. 

Around six million people will receive a £150 disability cost-of-living payment in September. The government is also both increasing and extending the Household Support Fund, with it going up by £500m and extended until March 2023. 

In a statement on the new measures, Sunak said: “We know that people are facing challenges with the cost of living and that is why today I’m stepping in with further support to help with rising energy bills.

“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. 

“I said we would stand by people and that is what this support does today. 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.”

Commenting on the new measures, StepChange Debt Charity’s director of external affairs, Richard Lane, said: “The additional £650 of support to households claiming benefits, delivered without bureaucracy, on top of the general support being made available to all households, will really help to reduce the impact of the eye-watering cost of energy. 

“We particularly welcome the efficiency with which it will be delivered. It will remain important to ensure that the choice to try to support the widest number of households doesn’t potentially dilute the amount of support being made available to those in the greatest need. 

“In our view, targeted support to provide as much help as possible to the households who simply can’t afford to make ends meet, even when they have pared their budget down to basics, is the best way to reduce harm and enable households to keep the lights on and food on the table.”

The Money Advice Trust’s director of external affairs and partnerships, Jane Tully, added: “Today’s very welcome package of support announced by the chancellor goes further than many expected. For households who are struggling with the cost of living across the board, this help could not come soon enough. 

“It is crucial now for households to be given immediate clarity on how much of today’s support they are entitled to, how they will receive or access it, and when payments will arrive.” 

In response to Sunak’s announcements in the chamber of the House of Commons, shadow chancellor Rachel Reeves said that - after today’s announcement - there’s “no doubt who is winning the battle of ideas in Britain - it is the Labour party”.