Windfall tax could help pay for the poorest five million to get an increase in benefits

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Windfall tax
Windfall tax

The windfall tax on oil and gas giants being prepared by the Treasury could be spent partly on bigger benefits payments for more than five million of the poorest Britons.

Increasing Universal Credit payments by bringing forward the point that they rise with recent inflation rates is one of the cost of living proposals being scrutinised.

Another would see the Treasury instead agree to send cheques worth hundreds of pounds to help the same group of people with further rises in energy bills expected in the autumn.

The two policy ideas are being weighed up as Boris Johnson and Rishi Sunak thrash out the best way to provide financial support, as inflation soars but economic growth stutters.

Both moves could meet the Treasury’s preference for coming up with policy solutions that are targeted at those most in need, rather than everyone, given the constraints on the public purse.

One government figure with an economic brief said of linking Universal Credit to more recent inflation rates: “It is the quickest and most effective way to help.”

There is a growing assumption within Whitehall that the Prime Minister will approve a one-off windfall tax on oil and gas companies, such as BP and Shell.

On Monday, Mr Johnson appeared to tone down his past criticism of a windfall tax, which Mr Sunak has warmed to given the doubling of profits for some energy firms as prices soar.

The Prime Minister said on Monday: “No option is off the table, let's be absolutely clear about that. I'm not attracted, intrinsically, to new taxes.

"But as I've said throughout, we've got to do what we can - and we will - to look after people through the aftershocks of Covid, through the current pressures on energy prices that we're seeing post-Covid and with what's going on in Russia.

"And we're going to put our arms around people, just as we did during the pandemic."

On Monday, Dominic Cummings, Mr Johnson’s former Downing Street adviser, joined other prominent political figures including George Osborne, the former Chancellor, and Ed Miliband, Labour’s shadow climate change secretary, in predicting that a windfall tax is coming.

It comes as 31 energy firms warned Mr Johnson on Monday that a windfall tax was a "blunt short-term response" that would "reduce investor confidence in the UK".

In an open letter to the Prime Minister and Rishi Sunak, the chief executives of companies including Petrofac and Halliburton said: "Undermining the UK’s oil and gas fiscal regime, just as we start to turn a corner of recovery, risks sparking a chain of events which could slow down the energy transition.

"For our companies, any surprise windfall tax risks operators – big and small – scaling back their investment plans in response. The ramifications of any halt in investment will be felt throughout the supply chain, through jobs, and the communities this industry supports, both directly and indirectly.

“For the tens of thousands of jobs this industry supports, the impact of a windfall tax will be even greater in the long term."

An announcement of a cost of living package is expected in the coming weeks.

Around 5.6 million people received Universal Credit this January, according to official government figures. Universal Credit replaced a number of individual benefits in a flagship Tory welfare reform.

Universal Credit rose by 3.1 per cent last month, in what is called "uprating". It was based on inflation figures from the autumn.

But inflation has far exceeded where it was then, with an increase of around nine per cent last month.

The next uprating of benefits is not due to take place until spring 2023, but the Treasury is considering bringing that forward to better reflect recent changes in inflation.

If a five per cent increase was implemented, that could mean around £40 a month more for the typical family on Universal Credit.

It remains unclear what uprating figure would be selected by the Treasury if it pushes ahead with the move, given there is a nervousness about “locking in” inflation.

Another option reportedly being weighed up by Treasury officials is to provide a cheque equivalent to roughly the same amount as the proposed Universal Credit uplift.

The move could be seen as politically appealing, given it may get better cut through with voters and be framed as money coming from a raid on oil and gas companies.

On Monday, Simon Clarke, the Chief Secretary to the Treasury, ruled out bringing back the £20 weekly increase of Universal Credit seen during the pandemic.

Mr Clarke said on BBC Radio Four: "That is not going to return. The question is how we best now look at the next range of solutions to deal with the challenges we're facing."

Torsten Bell, the chief executive of the Resolution Foundation think tank, said: "We have all known from Christmas onwards we were heading for a big rise in energy bills.

“It is becoming increasingly obvious that the people who will be worst hit are on low to middle incomes.

“The exam question now is how to get enough help to those people for the autumn and winter ahead."

The Financial Times reported on Monday night that Mr Sunak plans a tax raid worth more than £10bn on electricity generators, including wind farm operators.

The Treasury wants to go further than Labour's original plan - which would raise about £2bn from North Sea oil and gas.

"North Sea oil and gas producers are only half the picture," a government source told the paper. "The other half is that high gas prices have led to some pretty substantial windfall profits for all electricity generation."

Thirty-one energy firms warned Mr Johnson a windfall tax was a "blunt short-term response" that would "reduce investor confidence".

Thirty-one energy firms warned Mr Johnson on Monday night that a windfall tax was a "blunt short-term response" that would "reduce investor confidence in the UK".

In an open letter to the Prime Minister and Mr Sunak, the CEOs of companies including Petrofac and Halliburton, said: "Undermining the UK’s oil and gas fiscal regime, just as we start to turn a corner of recovery, risks sparking a chain of events which could slow down the energy transition.

"For our companies, any surprise windfall tax risks operators – big and small – scaling back their investment plans in response.

"The ramifications of any halt in investment will be felt throughout the supply chain, through jobs, and the communities this industry supports, both directly and indirectly. For the tens of thousands of jobs this industry supports, the impact of a windfall tax will be even greater in the long term."

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