What is a windfall tax and could the UK introduce one?

·Political Correspondent, Yahoo News UK
·5-min read
Oil platforms stand amongst other rigs which have been left in the Cromarty Firth near Invergordon in the Highlands of  Scotland. Rig platforms are being stacked up in the Cromarty Firth as oil prices continue to decline having a major impact on the UK's North Sea oil industry leaving thousands of people out of work.
There are growing calls from experts for the government to implement a Windfall Tax to help Brits with soaring energy bills. (PA)

Boris Johnson is under growing pressure to implement a one-off windfall tax on oil and gas producers in a bid to cut energy bills.

MPs are due to have their say on the issue on Tuesday as Labour seeks to force a Commons vote on its amendment which "expresses regret" at the omission of the policy from the Queen’s Speech earlier this month.

It comes as MPs debate “tackling the short-term and long-term cost of living increases”.

BP and Shell have recorded bumper profits in the last year,

In February, BP's finance director said it was possible the company was raking in "more cash than we know what to do with"

Meanwhile, in April Ofgem's energy price cap increased by 54%, driving up the annual household bill by £693, due to rises in the wholesale cost of gas.

According to the Office for National Statistics (ONS), 40% of Brits are now struggling to pay their energy bills.

What is a windfall tax?

Windfall taxes are a form of one-off taxation that can be placed on companies if they make unexpected profits from circumstances beyond their control.

Geopolitical issues - such as a surge in demand for energy as lockdowns ease globally, or Russia's invasion of Ukraine - have pushed up oil prices, driving up profits.

A windfall tax implemented by the government would target this extra money.

Read more: Rising food and fuel costs sting low-income households

File photo dated 10/03/22 of a BP sign, as BP has swung to a quarterly loss after taking a mammoth 25.5 billion US dollar (�20.4 billion) hit following its move to quit Russia, but soaring oil prices saw underlying profits hit their highest for more than a decade.
In February BP said it had "more cash than we know what to do with" as profits reached nearly £10bn. (PA)

Will the UK introduce a windfall tax?

For months the government has resisted a windfall tax, claiming it could deter investment in green infrastructure by energy companies at a time the UK is trying to become less reliant on Russian hydrocarbons and aiming for net-zero.

However, Rishi Sunak signalled he may be open to one.

The chancellor told the BBC he is not “naturally attracted” to a windfall tax, but he would be “pragmatic about it” in light of the vast profits recorded this year.

Other countries have implemented windfall taxes on oil giants to help with rising energy bills, such as Italy - who hiked theirs from 10% to 25% in May after introducing one in January.

Read more: Energy companies 'should be banned' from cutting off supply amid cost-of-living crisis

British Chancellor of the Exchequer Rishi Sunak walks near the Treasury building in London, Britain, May 3, 2022. REUTERS/Toby Melville
Rishi Sunak hinted last month that he may consider a windfall tax on oil giants despite the government rejecting such a move for months. (Reuters)

What are the energy companies saying?

BP on Tuesday indicated that a windfall tax would not necessarily deter their decisions to provide cash for green infrastructure.

The chief executive told the Times "there are none that we wouldn't do" when it comes to their green plans if a windfall tax were to be introduced.

At present, BP say they will spend £18bn over eight years on green energy - including on wind farms and electric car charging points.

EMBARGOED TO 0001 THURSDAY MARCH 3 File photo dated 4/2/2020 of electric vehicle charging points at Tynemouth. New electric cars are more likely to develop a fault than petrol and diesel models, a new survey suggests. A poll by consumer group Which? indicated that 31% of electric car owners reported a problem with their vehicle in its first four years. That is compared with 19% for petrol cars and 29% for diesel cars. Issue date: Thursday March 3, 2022.
The government has said a windfall tax on oil giants might deter green investment. (PA)

What do experts think?

On Wednesday Dr Miatta Fahnbulleh, chief executive at the New Economics Foundation (NEF), said introducing the tax now is "an absolute no brainer" when oil giant profits are so high.

"We should be asking them to take a hit in order to help people who literally eating one meal a day and not heating their homes," Fahnbulleh told LBC.

Paul Johnson, director at the Institute for Fiscal Studies, in March said generally windfall taxes are "not a great idea" - but the case is "relatively strong" given the current circumstances.

"Putting in place windfall taxes willy nilly can create problems for investment and certainty," said Johnson.

He added: "A much better policy would have been to make it clear that the tax rate would rise at a point when profits or prices went above a particular level."

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Shadow chancellor Rachel Reeves gives an outside interview as she arrives at BBC Broadcasting House in London, to appear on the BBC One current affairs programme, Sunday Morning. Picture date: Sunday March 20, 2022.
Shadow chancellor Rachel Reeves has called for a windfall tax on North Sea oil giants. (PA)

Where does each political party stand on the issue?

The main opposition parties are united in calls for a windfall tax.

Labour has said it would knock £200 off the average household energy bill, and up to £600 for those on the lowest incomes, by introducing a windfall tax.

Ed Miliband, shadow climate change and net-zero secretary, said of Tuesday’s vote: “As energy bills rise by record amounts for millions of families, it is shameful that Boris Johnson and Rishi Sunak still refuse to back a windfall tax that could help tackle the cost-of-living crisis."

Read more: Disabled gran removes all lightbulbs from her house to save on her energy bills

The Scottish National Party (SNP) has called for a "broad-based" windfall tax on the excess profits of major companies to fund a package of support for families and tackle the rising cost of living.

The Liberal Democrats have called for a "Robin Hood tax" on oil and gas firms seeing record profits to give over seven million households £300 off their energy bills this year.

And the Green Party is also calling for a windfall tax to help Brits struggling with the cost of living.

Watch: Environment secretary: Tax on oil industry may deter North Sea investments

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