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How to alleviate an accessibility crisis? The answer lies in the windfall tax.

On Tuesday, the UK government announced it would impose a temporary 25% tax on the currently rising profits of oil and gas producers. The measure, which came into effect immediately, is designed to tackle an affordability crisis threatening millions of UK households.

Put the windfall in their sails

Gripped by global inflation and the highest energy prices in years, the UK is facing its worst cost of living crisis since the 1950s. The annual energy bill of an average household of the country is set to reach £2,800 in October, which regulator Ofgem estimates will push 12 million households into fuel poverty.

As households suffer, British oil giant Shell posted a record $9.1 billion profit in the first quarter, while rival BP doubled its profit to $6.2 billion. Viewing windfall taxes as a barrier to investment, Prime Minister Boris Johnson’s government previously resisted the measure, but bears the onus of resolving this fractured dynamic without further raising the cost of living or spooking markets. . On Thursday, the Windfall Profits Tax was introduced as part of a multi-billion pound relief package designed to appease all sides:

  • The 25% levy will apply as an additional tax on top of current rates and will be phased out as oil and gas prices fall (fingers crossed). There is a loophole designed to boost oil production: companies can recoup up to 90% of windfall tax by investing in the development of new fossil fuels.
  • All UK households will get a one-off £400 rebate on their energy bills, while the poorest 8 million households will receive a one-off payment of £650. The measures will cost £15billion, while the windfall tax is expected to bring in just £5billion next year; Chancellor of the Exchequer Rishi Sunak has said imposing a similar levy on electricity operators is an option.

The charity Citizens Advice called the package “a life raft for the millions struggling to keep their heads above water”. Environmental charity Greenpeace UK called it a “band-aid” and demanded a windfall tax of 70%. Shares of Harbor Energy, the UK’s largest North Sea oil and gas producer, responsible for around 16% of 2021 oil production, fell after Sunak’s announcement but quickly rallied. recovered their losses.

They will be fine: Citigroup estimates that BP makes less than 10% of its profits in the UK, while Shell only makes 4% – and the UK government cannot tax international profits.

Not just Hungary: Hungarian Prime Minister Viktor Orbán shocked markets on Thursday by introducing a one-off tax on banks, energy firms, insurers, telecoms and even airlines as part of an emergency economic package. The hardline nationalist has used sweeping measures like this before, to hell with investor confidence. Chancellor Sunak, a former investment banker – along with the rest of Britain’s business-friendly government – was much more cautious and only considered the windfall tax months after the italy first attempted an almost identical levy. When in doubt, do as the Romans do.

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