Rishi Sunak (Photo: Parliament TV)
More than eight million low income households are set to receive lump-sum payments worth up to £650 to help with the cost of living crisis.
Rishi Sunak announced an emergency £15billion worth of support to help the poorest households and provide energy discounts for all.
He also performed a screeching U-turn by introducing a temporary windfall tax on oil and gas giants.
The chancellor said the levy would raise around £5 billion over the next year and include a “new investment allowance” to incentivise the reinvestment of profits.
Pensioners will also receive a one-off £300 payment and there will be a one-off disability cost of living payment of £150, as part of the package unveiled in the commons today.
The chancellor was forced to unveil the measures in a bid to tackle the impact of soaring inflation which has reached a 40-year high. He also said he knew people were “worried” and “struggling”.
Chancellor Rishi Sunak announces that pensioners will receive a one-off £300 payment and disabled people will receive a one-off £150 payment to help with the cost of living. pic.twitter.com/LhPGUybvyp
— LBC (@LBC) May 26, 2022
Sunak also announced he was now making the £200 loan for energy bills a grant - that no longer needs to be paid back - and increased its sum to £400.
The full package means that the eight million most vulnerable households would receive at least £1,200 of support, including a £150 council tax rebate which has already been announced.
A further £500 million will be allocated to the fund administered by councils to help households facing extra hardship.
The move aims to help families with sky rocketing bills that are set to increase further to £2,800 a year from October.
Sunak caved in to mounting pressure over a windfall tax, despite skepticism from fellow cabinet ministers.
Opposition parties had pushed for the one-off tax after BP and Shell both reported big increases in profits as oil and gas prices surge around the world.
However, ministers spent months criticising the idea of a windfall tax because of its potential impact on investment.
What Was Rishi Sunak’s Announcement?
Sunak announced an “energy profits levy” to raise around £5 billion in a year.
The temporary one-off tax will hit oil and gas firms by 25 per cent on extraordinary profits, which surged because of the invasion of Ukraine and the covid-19 pandemic.
An 80 per cent investment allowance was also announced in order to calm the nerves of Tory MPs that the move will dent North Sea firms’ investment to save them 91p for every £1 they spend.
Bills Discount For All
The chancellor acknowledged the situation has worsened since he announced the energy bills discount, which was effectively a £200 loan.
He doubled it to a £400 discount on bills for all households from October, and has made it a grant that will not need to be paid back.
Help For Low Income Households
More than eight million of the lowest income households will receive a £650 one-off payment.
It will apply to households on universal credit, tax credits, pension credit and legacy benefits.
Separate one-off payments of £300 will go to pensioners and £150 for those receiving disability benefits.
The chancellor said the government “will provide significant support for the British people” and added: “The oil and gas sector is making extraordinary profits not as the result of recent changes to risk taking or innovation or or efficiency as the result of surging global commodity prices driven in part by Russia’s war.
“For that reason I am sympathetic to the argument to tax those profits fairly. It is possible to both tax extraordinary profits fairly and incentivise investment.”
Shadow chancellor Rachel Reeves said it showed the Labour Party was winning “the battle of ideas in Britain”.
She told the commons: “After today’s announcement, let there be no doubt about who is winning the battle of ideas in Britain. It’s the Labour Party.
“It feels like the chancellor has finally realised the problems the country are facing. We first called for a windfall tax on oil and gas producers nearly five months ago to help struggling families and pensioners.
Rachel Reeves (Photo: Parliament TV)
“Today, he has announced that policy but he can’t dare say the words: it’s a policy that dare not speak its name with this chancellor.
“And it was Labour that first highlighted the unfairness of this government buy now, pay later compulsory loan scheme. It shouldn’t have taken a rocket scientist to work out that this wouldn’t cut and we pointed it out at the time.”
The timing of the announcement, the day after the publication of the damning Sue Gray report on partygate, prompted claims that ministers were trying to avoid further damaging headlines.
But earlier today, the prime minister’s chief of staff Stephen Barclay insisted the decision was in response to Ofgem’s indication the energy price cap will rise by more than £800 in October.
Ofgem’s chief executive Jonathan Brearley indicated this week that the energy price cap will increase to £2,800 in October.
Cabinet ministers who had previously expressed criticism of the idea included Jacob Rees-Mogg, Kwasi Kwarteng and Liz Truss.
Boris Johnson also previously said a windfall tax would “deter investment”, would be “totally ridiculous” and would “raise prices for consumers”.
This article originally appeared on HuffPost UK and has been updated.