rishi sunak budget

Sunak announces £15bn emergency package to mitigate cost of living crisis

Image credit: reuters

Millions of households will receive a £400 discount off their energy bills and a £5bn tax will be levied on oil and gas giants, as Chancellor Rishi Sunak moved to counter the soaring cost of living.

The Chancellor was forced to unveil emergency measures as part of a £15bn package to tackle the impact of soaring inflation, which has reached a 40-year high. As well as the universal payment, there was targeted support for the poorest, the elderly and the disabled.

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.”

Sunak said the government “will not sit idly by while there is a risk that some in our country might be set so far back they might never recover”.

The £400 in universal support from October replaces the initial plan for a £200 loan, with Sunak also scrapping the requirement to repay the money.

The measures announced by the Chancellor include a one-off £650 payment to more than eight million low-income households on benefits; a £300 payment to pensioner households, and £150 to individuals receiving disability benefits.

The package means that almost all of the eight million most vulnerable households should receive at least £1,200 of support, including the £150 council tax rebate which has already been announced.

A further £500m will be allocated to the fund administered by councils to help households facing extra hardship.

The Chancellor stressed the need to keep the public finances under control and set out how a tax on oil and gas firms – who have benefited from globally high prices driven by post-pandemic demand and the war in Ukraine – would raise around £5bn to help meet the cost.

The idea of a so-called 'windfall tax' on oil and gas company profits, originally proposed by Labour five months ago, has long faced resistance from the Tory government, with Sunak himself opposed to the idea, warning of the impact it would have on future investment. Earlier this week, 31 oil and gas companies signed a letter to the Chancellor, urging him not to implement any kind of "one-off windfall tax".

The Chancellor today said his plan for a 25 per cent energy profits levy would be coupled with a new incentive – a “new investment allowance” – almost doubling the tax relief available on the reinvestment of profits.

Sunak stopped short of also slapping the new levy on electricity generators, although he said the Treasury was evaluating the scale of the profits being made in the industry and what steps could be taken.

Sunak said: “Our strategy is to combat and reduce inflation over time through independent monetary policy, fiscal responsibility and supply-side activism. We are raising emergency funds to help millions of the most vulnerable families who are struggling right now. And all households will benefit from universal support with energy bills of £400, with not a penny to repay.

“In total, the measures I’ve announced today provide support worth £15bn. Combined with the plans we’ve already announced that means we are supporting families with the cost of living with £37bn, or 1.5 per cent of GDP.

“That’s higher or similar than countries like France, Germany, Japan and Italy. And I’m proud to say that around three-quarters of that total support will go to vulnerable households.”

He said “the vast majority of households” will now receive £550, pensioners will receive £850 and “almost all of the eight million most-vulnerable households in the country will in total receive support of £1,200”.

Shadow chancellor Rachel Reeves suggested that the government could adopt more of Labour’s ideas to help with the cost-of-living crisis.

Speaking in the Commons, Reeves said: “I know that the Chancellor has adopted two of our ideas today, but can I ask why he has not adopted a third: a cut in VAT on energy bills? It was once touted as the ‘big Brexit bonus’, but he has ditched that, too.”

She claimed this government's policies rarely lasted “more than a few months”, adding: “We pushed for a windfall tax, they adopted it. We said the 'buy now, pay later' scheme was wrong and now they have ditched it.”

Reeves asked the Chancellor whether households would still need to pay supplier-of-last-resort costs for electricity suppliers who had “gone bust”.

She also questioned the timing of the announcement, in light of the publication in full this week of Sue Gray's 'Partygate' report and its damning revelations about repeated Covid law-breaking at Number 10. Reeves said: “Every day for five months, the Prime Minister sent Conservative MPs out to attack the windfall tax and yet defends an increase in taxes on working people.

“He has made them vote against it not once, not twice, but three times – and for months he has sent his MPs to defend the litany of rule-breaking in Number 10 Downing Street set out in the Sue Gray report yesterday. There is a lesson here for Conservative MPs – you can’t believe a word that this Prime Minister says.”

“Labour called for a windfall tax because it is the right thing to do. The Conservatives are doing it because they needed a new headline.”

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