Britain Announces Windfall Tax to Help with Household Energy Bills

Britain announced a 25% windfall tax on profits of oil and gas producers to help fund a 15 billion pound package to relieve households of soaring energy bills.

Britain’s windfall tax is a one time levy that will be imposed on oil and gas companies, targeting excess and unexpected profits stemming from skyrocketing energy prices.

While opponents say the tax could discourage investment, those who are in favor say by being a one time measure, it is less damaging to economic activity.

British Finance Minister Sunak said the “energy profits levy” would be temporary and a 25% surcharge on the extraordinary profits of oil and gas firms.

The tax, which takes effect immediately, is expected to raise 5 billion pounds in the next 12 months. It will end when the oil and gas prices return to “historically more normal levels”.

Britain’s struggle with a cost of living problem caused by soaring energy prices and high inflation prompted the opposition Labour Party to propose a windfall tax on oil and gas companies who have benefited from high energy prices.

Britain’s energy industry said energy bills would see another surge of 40% in October.

Britain previously imposed similar measures in 1981 and 1997.

In 1981, Thatcher’s finance minister Howe imposed a windfall tax on banks that had made excess profits, having been largely protected from the effects of recession. It charged 2.5% of their non-interest bearing current account deposits to raise around 400 million pounds.

Howe introduced another tax, known as the Supplementary Petroleum Duty, on North Sea oil and gas firms which had benefited from soaring oil prices. It was levied on gross revenues rather than profit, at 20%. It ended after two years.

In 1997, the Labour government imposed a levy on the excess profits of privatized utility companies on the grounds of being undervalued when sold by the Conservative government. The windfall tax was estimated to have raised 5.2 billion pounds, which was used to fund a program to help people off welfare and into work.

Spain and Italy have also imposed similar taxes recently. In September, Spain  passed a measure to reduce high energy bills by redirecting billions of euros in extraordinary profits from energy companies to consumers via a windfall tax. The government expected to direct some 2.6 billion euros from energy firms to households over six months.

In May, Italy announced a 10% one-off levy on producers and sellers of electricity, natural gas and petroleum products would be raised to 25% to help consumers and businesses with high energy costs. The levy applies to profit margins that rose by more than 5 million euros between October last year and April this year compared to the same period a year earlier, with the exception of companies whose profit margin rose by less than 10%.

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