Britain Will Tax Oil and Gas Profits as Cost-of-Living Crisis Swells

LONDON — The British government said it would use a windfall profits tax on oil and gas companies to help raise funds for direct payments to households, totaling about 15 billion pounds (about $19 billion), to ease the country’s cost-of-living crisis.

Rishi Sunak, the chancellor of the Exchequer, announced the measures on Thursday as the government has come under increasingly intense pressure to help households with rapidly rising inflation and energy bills. Mr. Sunak said that energy companies had benefited from the surge in global commodity prices, in part driven by the war in Ukraine, and that some of their soaring profits could be used to protect low-income households.

Oil and gas companies will be charged a 25 percent tax on their “extraordinary” profits. The tax will be phased out as energy prices return to normal, Mr. Sunak said, but will not last beyond 2025. It will generate £5 billion over the next year, amounting to about a third of the cost of the direct payments for households, the Treasury estimated. The measure will include an investment allowance that will help companies cut their tax if they reinvest their profits in Britain.

“The oil and gas sector is making extraordinary profits,” Mr. Sunak told lawmakers in Parliament. “Not as the result of recent changes to risk taking or innovation or efficiency, but as the result of surging global commodity prices.”

“For that reason, I am sympathetic to the argument to tax those profits fairly,” he added.

This month, Shell, the London-based energy giant, reported its biggest-ever quarterly profit for the three months that ended in March, making $9.1 billion, and BP reported its largest quarterly profit in a decade.

Both companies provided cautious responses to the new tax.

BP said it saw many opportunities to invest in Britain, but it pointed out that Thursday’s announcement was not for a one-off tax but was instead a multiyear proposal. Amid growing calls for a windfall tax, BP said this month that it would invest £18 billion in British energy by 2030.

“Naturally we will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans,” BP said in a statement.

In March, Shell said it would investup to £25 billion in the British energy system over the next 10 years. After Mr. Sunak’s announcement, the company said that “a stable environment” was fundamental to its investment plans, and that the investment allowance in the new levy was a “critical principle.”

In the United States, a group of Democrats in Congress are pushing for a windfall tax on oil companies, calling out the firms’ plans to spend billions buying back their stocks to raise their value.

Other countries have approved measures to force energy companies to take on some of the burden of high prices that would otherwise fall to households. Spain has extended its tax cuts on household energy bills and prolonged the levy on companies. France this year capped electricity price increases at 4 percent, which the state-owned power company EDF said would lead to a loss in earnings of about 10 billion euros.

In Britain, the government has been accused of being slow to support low-income households amid rising food and energy prices, leaving people forced to make difficult spending choices. Now the government appears to be trying to steer focus away from the lawbreaking lockdown parties held at Downing Street after a long-awaited report into the gatherings was published on Wednesday and has dropped its resistance to an additional tax on oil and gas companies.

Britons are expected to face one of the worst squeezes on their disposable incomes in decades. Last month, Britain’s annual inflation rate jumped to 9 percent, the highest in 40 years, and is expected to peak above 10 percent later this year. Consumer confidence has plummeted. The central bank forecasts that high inflation will restrict consumer spending and warns that Britain is at risk of a recession.

“The high inflation we are experiencing now is causing acute distress for the people of this country,” Mr. Sunak said. “I know they are worried, I know people are struggling.”

On Thursday, he laid out his plan to tackle this, though the payments won’t be sent until later in the year. Every household will receive £400 (about $500) in October. In addition, more than eight million low-income households will receive £650, split across two payments in July and the fall. Another eight million retired people already receiving help with their energy bills will get £300 toward the end of the year, and six million people on disability payments will get another £150 in September. Local councils will also be giving out £500 million in October to support households.

Torsten Bell, the chief executive of the Resolution Foundation, which studies British living standards, said the measures were “a big and very welcome package of support” that targeted lower-income households. Twice as much of the £15 billion will go to the lower-income half of householdsas the top half, the organization estimated.

In April, the cap on household energy bills rose 54 percent, raising the amount that 22 million households pay to about £2,000 a year. The government gave most households £150 off their household bills in April and said it would cut another £200 in October, but that sum would need to be repaid over five years.

Energy bills are expected to jump higher in the fall.This week, the head of Ofgem, the agency that sets the price cap, said the cap could increase by another £800 in October.

On Thursday, Mr. Sunak said he would scrap the repayment plan for the October relief and double it to £400.

The government has been under pressure to deliver more fiscal support to households since its last budget proposal two months ago, when Mr. Sunak’s announcements underwhelmed economists and campaigners. Then he announced a modest cut to taxes on gasoline and diesel for a year and increased the income threshold that workers must meet before paying National Insurance, a broad tax.

There are signs that high prices are starting to bite in Britain. Nearly 90 percent of Britons said their cost of living had increased because of higher food, fuel and energy prices, and people reported efforts to cut down on their energy use at home and take fewer car journeys, according to the Office for National Statistics. Other polls have shown people cutting back on dining out, takeouts and nonessential food.

Despite Thursday’s announcement, which should help the poorest third of households offset the shock from energy bills, “prospects for the economy in the coming quarters remain gloomy,” Amarjot Sidhu, an economist at BNP Paribas, wrote in a note to clients. Incomes once adjusted for inflation will still be strained while businesses have received no new support, he added.