UK Mulls Temporary Windfall Tax on Energy Companies

/ Financial News / Tuesday, 24 May 2022 06:55

Reacting to the impact of the current energy crunch, the British government said that a temporary windfall tax on oil and gas companies would be levied if they failed to invest their recently earned profits into boosting capacity.

The British government is looking at ways to support households who have been affected due to soaring energy prices as a result of supply chain disruption, specifically caused by the Russian-Ukraine war and is looking at levying windfall tax on energy companies to speed up production and lower energy costs.

Britain's Finance Minister Rishi Sunak has also backed the option introducing windfall tax and said that energy companies need to reinvest their profits into creating jobs, economic growth and energy security.

UK’s Consumer Prices Index inflation increased to 9% in April from 7% in March, according to the Office for National Statistics. A major cause of the rise is attributable to the price cap on energy bills, which was increased by 54% for the average household at the start of April.

Meanwhile, British Prime Minister Boris Johnson has maintained that windfall tax on energy companies would hamper investment and keep oil prices higher over the long term.

"If you put a windfall tax on the energy companies, what that means is that you discourage them from making the investments that we want to see that will, in the end, keep energy prices lower for everybody," Johnson told media when asked about the government's plans to ease a cost-of-living crisis.

Most recently, all major oil companies have reported massive profits in their net earnings as a result of  high energy as well as commodity prices. Energy prices are expected to rise more than 50% in 2022 before easing in 2023 and 2024, according to the World Bank estimates.

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