Rishi Sunak accused of ‘dither’ over windfall tax U-turn to fund £15bn cost-of-living package

Cash includes £400 rebate on energy bills – and double for people with second homes

Rishi Sunak has been accused of costing taxpayers £6bn by dithering over his windfall tax U-turn, after he announced a levy on oil and gas companies to help pay for a £15bn cost-of-living support package.

The announcement also sparked fears that the sudden injection of cash would drive up inflation and interest rates.

And environmentalists accused the chancellor of offering state subsidies for climate change, after he announced new tax breaks to ensure the £5bn levy does not deter investment in North Sea oil and gas extraction.

Mr Sunak finally bowed to months of pressure on Thursday to impose a 25 per cent tax on the “extraordinary profits” of energy giants, part-funding assistance worth £1,200 a year for around 8 million of the country’s poorest households.

The move was welcomed as a “breathing space” for families faced with a choice between heating and eating, as prices for energy and food soar.

But the levy applies only from 26 May, meaning that the Treasury will receive no extra income from the additional earnings resulting from recent price spikes, with BP and Shell reporting combined “super-profits” of £11.5bn in the last quarter of 2021 and the first three months of 2022 alone.

The Treasury confirmed that borrowing would be increased to cover the remaining £10bn of the cost of the package.

Mr Sunak’s package of help will provide one-off payments of £650 to 8.3 million households in receipt of means-tested benefits, £300 to 8 million pensioner households, and £150 each to 6 million individuals receiving disability benefits. In some cases the total will reach £1,650.

Cost of living: how to get help

The cost of living crisis has touched every corner of the UK, pushing families to the brink with rising food and fuel prices. The Independent has asked experts to explain small ways you can stretch your money, including managing debt and obtaining items for free.

- If you need to access a food bank, find your local council’s website and then use the local authority’s site to locate your nearest centre.

- The Trussell Trust, which runs many foodbanks, has a similar tool.

- Citizens Advice provides free help to people in need. The organisation can help you find grants or benefits, or advise on rent, debt and budgeting.

- If you are experiencing feelings of distress and isolation, or are struggling to cope, The Samaritans offers support; you can speak to someone for free over the phone, in confidence, on 116 123 (UK and ROI), email jo@samaritans.org, or visit the Samaritans website to find details of your nearest branch.

In what was effectively an emergency Budget, delivered a day after the publication of Sue Gray’s Partygate report, he also doubled the planned rebate on fuel bills from £200 to £400, and converted the payment from a loan to a grant.

The cash will be deducted from the energy bills of every household for six months from October, meaning wealthy households will benefit as well as poorer ones – and those with more than one home will receive multiple payments.

The Household Support Fund, which allows local councils to offer discretionary help, was boosted by £500m to £1.5bn and extended from October until March 2023.

Mr Sunak said the money was targeted at “those who are paying the highest price for the high inflation we face”, adding: “I said we would stand by people, and that is what this support does today.”

But shadow chancellor Rachel Reeves said Mr Sunak had spent five months dismissing Labour’s calls for a windfall tax, with Boris Johnson ordering Tory MPs to vote it down as recently as last week.

Mr Sunak’s “dither and delay” had cost consumers £53m for every day the chancellor refused to act, she said.

“For months, it has been clear that more was necessary to get people’s bills down,” Ms Reeves told the Commons. “So what took this government so long?”

And Liberal Democrat Treasury spokesperson Christine Jardine branded the move a “levy lite”, pointing out that it would have raised £11bn if it had been introduced when her party first proposed it last October.

Meanwhile, it emerged that the energy profits levy – a temporary measure that raises tax on North Sea profits from 40 to 65 per cent – could remain in place until the start of 2026. The Treasury said it would be phased out earlier only “if oil and gas prices return to historically more normal levels”.

And ministers are to consult with the electricity generation industry on a similar scheme, in an effort to bring consumer prices more in line with the true cost of production.

The chief economist at the Confederation of British Industry, Rain Newton-Smith, warned that the levy would damage investment as well as the government’s net zero ambitions.

“It sends the wrong signal to the whole sector, at the wrong time, against a backdrop of rising business taxation elsewhere,” she said.

And there was discontent on the Tory back benches, with John Baron calling for a hike in the minimum wage to provide longer-term assistance, and Richard Drax and Edward Leigh saying the chancellor should have given a boost to people’s wallets by cutting tax.

But the Resolution Foundation, a think tank that seeks to improve living standards for those on low and middle incomes, said that Mr Sunak’s package was “a good attempt to target those with higher energy bills”, while warning that it was less generous to larger families with many children.

The chief executive of the Child Poverty Action Group, Alison Garnham, said it was “a relief that government is finally waking up to the fact that families need more support”.

But she said: “With almost 4 million children living in poverty, the chancellor is kidding himself if he thinks that the problem is temporary, or that the package he offered today will stop people finding themselves so far back that they never recover.”

And there was anger that unpaid carers in receipt of Carer’s Allowance were excluded from the additional support, as well as fears that the one-off payments will have to be repeated within months unless inflationary pressures abate.

The head of the Institute for Public Policy Research think tank’s Centre for Economic Justice, Dr George Dibb, said Mr Sunak’s unwillingness to provide long-term solutions to households’ financial pressures could force him to return with another package as early as January.

“Everything announced today is a sticking plaster,” said Dr Dibb. “With a government that lurches from crisis to crisis, and energy prices remaining high into 2023, vulnerable families and businesses will be looking to the chancellor to come back to the Commons in the new year. A better solution would be supporting long-term confidence in the British economy with a more permanent fix.”