Watch: Sunak announces windfall tax on oil and gas companies

Rishi Sunak has bowed to growing pressure and handed millions of households a £400 discount off their energy bills to deal with the growing cost of living crisis.

The move is part of a £15bn package of support that will be in part paid for by a £5 billion windfall tax levied on oil and gas giants.

The Chancellor has also handed additional support for the poorest, the elderly and the disabled.

Sunak was forced to unveil emergency measures to tackle the impact of soaring inflation, which has reached a 40-year high.

The Chancellor acknowledged that high inflation is causing "acute distress" for people in the country, telling MPs: "I know they are worried, I know people are struggling."

What has Sunak announced?

These are the key announcements announced today:

• a temporary windfall tax on oil and gas giants that will raise £5bn and includes a "new investment allowance" to incentivise the reinvestment of profits.

• the £200 loan for energy bills will become a grant that no longer needs to be paid back and is increased to a sum to £400

• a one-off disability cost of living payment of £150

• pensioners will receive a one-off £300 payment

• eight million of the lowest income households will be sent a one-off payment of £650

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 and Russia's invasion of Ukraine – have pushed up oil prices, driving up profits for energy companies.

A windfall tax implemented by the government targets this extra money.

For months the government had 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.

The chancellor recently said he was 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.

What have the experts said about it?

The respected Institute for Fiscal Studies director Paul Johnson tweeted after the announcement: "Big, expensive package from Rishi Sunak.

"In conjunction with tax rises already in place this is hugely redistributive – taking from high earners and giving to the poor.

"Promise to increase benefits and pensions by September inflation next April. Likely to be 10% or more. As expected. Big cash increase in spending."

Where does each political party stand on the issue?

Labour has previously 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, previously said: "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."

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