Cost of living crisis: Rishi Sunak announces windfall tax on energy firms and £400 bill rebate

The Chancellor is widely expected to include a package to help the poorest cope with the rising cost of living on Thursday.

He will also have to be careful that any extra help he puts into the economy does not add further to inflation, which is currently at a 40-year high.

As well as the possible impact on inflation, Mr Sunak’s ability to help beyond the £22 billion package already announced will also be restricted by the state of the nation’s finances.

A Treasury spokesman explained: “The Chancellor was clear that as the situation evolves, so will our response, with the most vulnerable being his number one priority.”

The Prime Minister said the hundreds of billions poured into dealing with the Covid pandemic had left the country in a “very difficult fiscal position”.

At a Downing Street press conference, he acknowledged that households “are going to see pressures for a while to come” due to the spike in global energy prices and supply chain problems following the pandemic.

But he said: “We will continue to respond, just as we responded throughout the pandemic.

“It won’t be easy, we won’t be able to fix everything. But what I would also say is we will get through it and we will get through it well.”

Mr Sunak is expected to impose a windfall tax on the soaring profits of energy firms today (26 May), despite ministers spending months criticising the idea because of its potential impact on investment.

However, on Wednesday a Tory source said the arguments had been “tested rigorously” within both the Treasury and wider government.

He said: “There’s a high threshold that any package that we bring forward delivers more gain than pain, that the gain is worth the pain, that it does not jeopardise the investment.

“You don’t introduce random taxes that make the economic environment unpredictable.”

Offshore Energies UK (OEUK), which represents the offshore oil and gas industry, has warned a one-off tax on North Sea firms would see higher prices and do long-term damage to the oil and gas industry.

Shadow chancellor Rachel Reeves said Rishi Sunak had been “dragged kicking and screaming” into performing a U-turn over a windfall tax on oil and gas firms.

Labour has been campaigning for the measure against opposition from Boris Johnson who said the tax would “deter investment”, would be “totally ridiculous” and would “raise prices for consumers”.

The Chancellor also voiced opposition but began laying the grounds for a change of policy in recent weeks, saying he was “pragmatic” about the possibility.

Some of the most vehement criticism has come from Brexit opportunities minister Jacob Rees-Mogg, who argued it is wrong to raid the “honey pot of business” and the measure would ultimately see the public pay more tax.

But Labour leader Sir Keir Starmer has argued a U-turn is “inevitable” as the tax on North Sea firms would “raise billions of pounds, cutting energy bills across the country”.

Chancellor of the Duchy of Lancaster Steve Barclay said the Conservatives disagreed with the Labour Party’s proposal of a windfall tax because of “the risk to inward investment”.

He told BBC Breakfast: “What we do recognise is the Government needs to have targeted support, particularly for those most affected by those higher bills, and that’s what the Chancellor will be setting out.

“We recognise there is a huge challenge for households in terms of meeting that combination of energy costs and food costs.

“What the Chancellor will set out is how we do that through looking at the balance… and how you do that in a way that also recognises we do need a long-term monetary strategy, and one that attracts inward investment.”

Chancellor Rishi Sunak has confirmed a temporary windfall tax on oil and gas companies as part of the government’s plan to tackle the cost of living crisis.

He said the tax would include a “new investment allowance” to incentivise the reinvestment of profits.

Rishi Sunak said a temporary new levy charged on profits of oil and gas companies at a rate of 25%.

He said this would raise around £5 billion over the next year.

Eight million low income households will receive a one-off payment of £650, the Chancellor announced.

He said: “I can announce today we will send directly to around 8 million of the lowest income households a one-off cost-of-living payment of £650, support worth over £5 billion to give vulnerable people certainty that we are standing by them at this challenging time.

“DWP will make the payment in two lump sums, the first from July, the second in autumn, with payments from HMRC for those on tax credits following shortly after.”

The Chancellor has made the £200 loan for energy bills a grant that no longer needs to be paid back.

He also announced that this support will be doubled to £400.

He said: “We have decided that the £200 of support for household energy bills will be doubled to £400.

Mr Sunak confirmed that pensioners will receive a one-off £300 payment from autumn.

He said: “I can announce today that from the autumn we will send over eight million pensioner households who receive the winter fuel payment an extra one-off pensioner cost of living payment of £300.”

The Chancellor also announced a one-off disability cost of living payment of £150.

He added: “To help the six million people who receive non-means tested disability benefits, we will send them, from September, an extra one off disability cost of living payment worth £150.”

He confirmed that many of these people will also receive a £650 payment announced for low income households, taking their total support to £800.