The Secretary of State for Business and Energy, Grant Shapps has hinted that the government will likely extend the windfall tax on oil and gas companies in the upcoming autumn budget in a bid to stabilise the UK’s public finances.
Last week, an initial report hinted Prime Minister Rishi Sunak and Chancellor Jeremy were planning to extend windfall taxes on energy companies to raise an estimated £40bn over five years.
Mr Sunak and Mr Hunt reportedly want to maximise revenues from the windfall tax by increasing the rate from 25% to 30%, extending the policy until 2028, and expanding it to cover electricity generators.
With BP unveiling profits that doubled to more than £7.1bn in the three months to September, pressure is continuing to mount for an enhanced windfall tax on oil and gas giants to help fill the Treasury coffers.
COP26 president Alok Sharma has backed the move. He explained:
“We need to raise more money from a windfall tax on oil and gas companies and actively encourage them to invest in renewables.”
The case for a windfall tax has been a political ‘hot potato’ since the energy crisis began following Vladimir Putin’s invasion of Ukraine. With the political turmoil facing the Conservatives in recent months, the new Prime Minister is under pressure to raise public finances.
The Resolution Foundation said in a report last week that tax rises are “likely” to come soon as the government faces “only difficult options” to find ways to re-balance the nation’s finances.
A combination of tax rises and spending cuts is likely to find the £40bn needed.
The Prime Minister and Chancellor are currently figuring out how to tackle a very difficult economic situation ahead of the autumn statement on 17 November, which was pushed back soon after Mr Sunak reappointed Mr Hunt.
Business Secretary Mr Shapps said:
“It is the case that because fuel prices have been so high, there have been unexpected profits, of course.
“But I think it’s important that we do carry on investing in making sure not on fossil fuels, but on the renewable energy as well, that we’ve got the capacity, we’ve got the ability to get that market moving as well.”
He added that the general public will “have to wait until the 17th” to know which measures the country is going to pursue to tackle the £40bn financial deficit.
Views from the opposition
The Government’s position on such windfall taxes has been hotly contested by Shadow Climate Change Secretary and former Leader of the Opposition, Ed Miliband. On recent record-profits of companies such as BP, Mr Miliband said it was “damning evidence of the failure of the Government to levy a proper windfall tax”.
“Rishi Sunak should be hanging his head in shame that he has left billions of windfall profits in the pockets of oil and gas companies, while the British people face a cost-of-living crisis” he added.
Pressure from the opposite benches is not likely to let up, unfortunately for Mr Sunak. After further hikes in interest rates from the Bank of England, households across the country are continuing the feel the squeeze on finances – pushing the Conservative leadership to take further action during the cost-of-living crisis.
The expected windfall tax symbolises the divergence in the Government’s fiscal agenda, after former Prime Minister Liz Truss’s ousting after 45 days. Nevertheless, the windfall tax is likely to address the current deficit rather than forming additional support for households. With indications of higher taxes and reduced spending, the country holds its breath for a second period of austerity. We shall have to see how the next few months transpires – yet for millions across the UK, it certainly looks difficult.