Britain’s government announced it would place a temporary levy on oil and gas production to help alleviate consumers from soaring energy prices. The UK hopes this move will assist its efforts to put a halt to worsening cost-of-living prices.
What is a Windfall Tax?
A windfall tax is a tax utilized by governments against certain industries when economic conditions result in large and unexpected profits. The purpose of a windfall tax is to redistribute excess profits in one area for the greater social good, although sometimes when levied they can be very controversial. In some instances, individual taxes such as inheritance tax or taxes on lottery winnings can be levied as part of a windfall tax.
Hopes of Levy
The announced 25% windfall tax on oil and gas producers’ profits, alongside a 15 billion pounds (equivalent to roughly $18.9) package of support for households struggling to meet soaring energy bills. The package will provide relief by granting a £400 discount for all UK households, with more funding available for the low-income households.
Britain’s finance minister Rishi Sunak said that energy firms were making extraordinary profits while Britons are facing what is being coined a cost-of-living crisis. These two forces combined likely prompted Prime Minister Boris Johnson’s government to enforce a windfall tax, something they previously resisted calling it a deterrent for investment.
Revamped Investment Policy
The new windfall tax being levied addressed the concerns had about deterring investments, as there is a built-in investment allowance. Rishi Sunak told parliament, “We will introduce a temporary and targeted energy profits levy but we have built into the new levy a new investment allowance that means companies will have a new and significant incentive to reinvest their profits.” Essentially saying, “The more a company invests, the less tax they will pay.”
Wrap Up
The UK’s announced windfall tax is the second emergency policy intervention enacted to help combat soaring bills this year. It is clear that the UK’s government is looking in all directions for ways to assist its citizens in combatting the currently high cost-of-living expenses.