Rishi Sunak has stepped up his warnings to Britain’s oil and gas industry that unless companies announce increased investment plans for the UK “soon” they face a potential windfall tax on their profits.
The UK chancellor is under pressure from his political opponents — and some prominent members of his own Conservative party — to impose a one-off levy on energy groups, which have seen profits soar thanks to the higher price of gas.
On Tuesday Labour used a debate on the recent Queen’s Speech to force a Commons vote on whether to impose a windfall tax — an opposition move designed to highlight the government’s reluctance to impose one. The vote was lost by 310 to 248.
Although the motion was not supported by a single Tory MP, there is disquiet on the Conservative benches that the government has not convinced the public that it is doing enough to tackle the cost of living crisis. According to a new YouGov poll, some 72 per cent of Britons think the government is handling the economy badly.
For months Sunak has resisted the idea of a windfall tax, arguing that it could deter investment in the North Sea at a time when the government wants to enhance UK’s energy security. Yet in recent weeks, as companies have smashed analysts’ profit forecasts, the chancellor has shifted his language.
Now he has made clear that unless companies such as BP and Shell lift their investment targets for the UK beyond existing plans, he will hit them with a levy. The funds raised could be used to help alleviate the growing cost of living crisis.
Ed Miliband, Labour’s shadow energy secretary, told the House of Commons that Sunak’s resistance to a levy did not make sense given that previous Tory governments had levied windfall taxes. Margaret Thatcher’s Conservative administration raised taxes on the oil and gas sector in the 1980s, and hit banks with a windfall levy in 1981.
“However large the crisis, however huge the windfall, taxation should not change?” Miliband asked.
He also cited several prominent figures who have backed the idea. They included Lord William Hague, former leader of the Conservatives, Lord John Browne, one-time chief executive of BP and John Allan, chief executive of Tesco.
“The usual leftie suspects,” Miliband joked.
Sunak told MPs he would take a “pragmatic” approach to the issue. “What we want to see are energy companies who have made extraordinary profits at a time of acutely elevated prices, investing those profits back into British jobs. Growth and energy security,” the chancellor said.
“But as I have been clear, and as I have said repeatedly, if that doesn’t happen soon and at significant scale, then no option is off the table.”
The chancellor said it was “irresponsible” to suggest he had not taken action to help people with the rising cost of living, as inflation has soared.
He told MPs that the government had cut fuel duty, given a council tax rebate to millions, cut the taper rate on universal credit and increased the warm homes discount. “This government has always acted to protect this country at times of challenge,” Sunak said.
But he added that the causes of rising prices were global in nature and that “no honest chancellor” could tell the public that they would not rise further. “There is no measure any government can take, any law you can pass, that can make those global forces disappear overnight.”
Household energy bills in Britain are expected to remain high, despite proposals by the regulator Ofgem to review the country’s energy price cap every three months so any decreases in wholesale prices can be passed to consumers faster.
Energy consultancy Cornwall Insight said on Tuesday that it expected the price cap to rise by more than £600 when it next changes in October, to more than £2,600 a year per household on average.
Mel Stride, chair of the Treasury select committee, said on Monday he believed “there is a case” for a windfall tax.
Robert Halfon, chair of the education select committee, said he would abstain on Tuesday’s vote. He said the government should consider a windfall tax, arguing that oil companies “are not passing the [fuel duty] cuts to the pumps, [and] they take ages to reduce the price when the international cost falls”.
Meanwhile Kwasi Kwarteng, business secretary, wrote to petrol retailers urging them to pass on the recent 5p-per-litre cut in fuel duty to customers as soon as possible.
Kwarteng said in his letter that the government has asked the Competition and Markets Authority, the regulator, to ensure that the industry is not “infringing competition or consumer law”.
After the Commons vote, Jenny Stanning of trade body Offshore Energies UK said the Treasury was predicted to take £5bn more from oil and gas companies than it expected last October, due to the high global price and high tax rate.
“Offshore oil and gas companies are already taxed at 40 per cent, double that of the UK’s other industries,” she said.
“A windfall tax risks harming investment, which would lead to less home-produced energy, a drop in investment into green energies and a big hit to jobs.”
Additional reporting by Nathalie Thomas