It’s the news we all expected: Chancellor Rishi Sunak has bowed to pressure by announcing a package of support to help households cope with the cost of living crisis.

The £15 billion package will be partly funded by a new temporary 25% windfall tax on oil and gas firms’ profits. The Treasury said this Energy Profits Levy would raise about £5 billion over the next year, with an investment allowance to encourage companies to invest in oil and gas extraction in the UK.

What’s in the cost of living package?

The new measures will include:

  • £400 energy bills discount for every household from October
  • £650 one-off payment for people on means tested benefits
  • £300 one-off payment for pensioners
  • £150 disability payment
  • £500m increase and extension of Household Support Fund

The Government said the £15 billion package was on top of its existing £22 billion cost of living support, which includes February’s energy bills intervention and action taken at this year’s Spring Statement.

Announcing the new measures, Mr Sunak said: “We have a collective responsibility to help those who are paying the highest price for the high inflation we face. That is why I’m targeting this significant support to millions of the most vulnerable people in our society. I said we would stand by people and that is what this support does today.

“It is also right that those companies making extraordinary profits on the back of record global oil and gas prices contribute towards this. That is why I’m introducing a temporary Energy Profits Levy to help pay for this unprecedented support in a way that promotes investment.”

The Government has scrapped its plan to give everyone in England, Scotland and Wales £200 off their bills from October, which would have been repaid over five years. Instead, the £400 energy bills discount will be given as a grant, so it won’t need to be paid back.

Energy Profits Levy

Mr Sunak said surging commodity prices, driven in part by Russia’s war on Ukraine, had meant the oil and gas sector was making ‘extraordinary profits’.

The Energy Profits Levy will be charged on oil and gas company profits at a rate of 25%. The tax will be temporary and will be phased out if oil and gas prices return to historically more normal levels.

Meanwhile, the new Investment Allowance will aim to give companies an incentive to invest through saving them 91p for every £1 they invest.

My thoughts on the support package

I’m pleased the Government is attempting to make the cost of living crisis more manageable for the poorest households – and that they recognise all households are affected by it.

But we’ll have to wait and see to what extent the measures achieve the desired results.

Will there need to be more measures in the autumn? That will depend on what happens in the coming months.

For now, it appears the Government isn’t in a position to raise taxes and try to recoup its spending from the last few years.

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Stephanie Churchill

Managing director & co-owner of Churchill Taxation