Rishi Sunak announced a £5 billion “targeted profit levy” on energy companies today, in a move which prompted a sigh of relief from struggling consumers in light of news earlier this week that the energy price cap was set to rise to £2,800 per year in October.
The reported measure comes as part of a £15 billion support package drummed up to support UK citizens as the crushing cost of living soars to record heights, including 40-year high 9% inflation.
Sunak confirmed that a new temporary 25% Energy Profits Levy would be set out for oil and gas companies, reflecting their record profits as a result of skyrocketing oil prices on the back of Russia’s war in Ukraine.
Oil prices soared to heights of $130 per barrel at their peak in mid-March, with the energy giants reaping bumper rewards. Shell tripled its profits in Q1 2022 as consumer bills shot through the roof at the close of winter this year.
“It is … right that those companies making extraordinary profits on the back of record global oil and gas prices contribute towards this,” said Sunak.
“That is why I’m introducing a temporary Energy Profits Levy to help pay for this unprecedented support in a way that promotes investment.”
Additionally, the chancellor scrapped the poorly received £200 loan for energy bills, and replaced it with a £400 sum which would not need to be paid back, available for all consumers across the country.
Millions of households will consequently receive £400 towards their energy costs, with a £650 one-time cheque for the eight million most vulnerable families, a £300 payment for eight million pensioners and £150 million to six million people living with disabilities in the UK.
“We have a collective responsibility to help those who are paying the highest price for the high inflation we face,” said Sunak.
“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.”
Shell and BP shrug off the shock
Shell and BP shares brushed the dirt off their shoulders as the energy majors’ shares remained startling buoyant, rising 1.2% to 2,407p and 1.6% to 434.7p, respectively.
Meanwhile, investors appeared satisfied that higher investment in clean energy and UK businesses would bring taxes lower, while accelerating the companies’ environmental diversification.
“[Investors] shrugged off its impact given that it is expected to be a short lived hit,” said Hargreaves Lansdown investment and markets analyst Susannah Streeter.
“It may mean dividends are pushed lower temporarily, but given that tax will reduce if companies invest more, it’s likely to mean an acceleration of investment by BP and Shell, a strategy which will be welcomed by many investors who see environmental progress and not just shareholder pay-outs as crucial for their long term growth prospects.”
Investors further appeared unconcerned about the levy after taking into consideration how low an impact the price tag actually had on the energy giants’ profits for this year.
“A chunk of profit may still be scooped from the oil and gas majors but the levy will still represent just the cream on the top of fat volumes of cash being generated by energy giants due to the higher price of oil,” said Streeter.
“A barrel of Brent crude, the international benchmark, has edged higher to just shy of $115 dollars.”
“It is up by around 50% since the start of the year pushed higher by the outbreak of war in Ukraine.”