What Rishi Sunak announced to tackle the cost of living crisis

In a major U-turn, chancellor Rishi Sunak has announced a £5bn temporary windfall tax of 25 per cent on oil and gas companies to help fund a £15bn package of assistance for households struggling in the cost-of-living crisis.

Mr Sunak said that almost all of the 8m of the worst-off households in the UK will benefit to the tune of £1,200, made up of support measures including a £650 cost-of-living payment for the poorest, a one-off £300 payment to 8m pensioner households and £150 each to 6m disabled people.

And he said that he will double the assistance with energy bills on offer to all households this autumn from £200 to £400 and convert the payment from a loan to a grant.

He said that tax breaks for innovation, including a new 80 per cent investment allowance, will ensure that the one-year Energy Profits Levy on North Sea oil and gas giants does not reduce investment in green power.

The chancellor’s package was announced in a statement to parliament the day after the publication of Sue Gray’s Partygate report, and was seen by many MPs as an effort to distract attention from demands for Boris Johnson to resign in response.

It came just a week after Boris Johnson ordered Conservative MPs to vote down Labour proposals for a windfall tax on the grounds it would hit investment. And it came days after regulator Ofgem said that average bills for gas and electricity can be expected to rise by a further £800 to £2,800 a year in October when the price cap comes up for review.

Shadow chancellor Rachel Reeves said Mr Sunak’s announcement showed that her party was “winning the battle of ideas”.

“This government’s dither and delay is costing the country dearly,” Ms Reeves told the House of Commons. “The chancellor has finally realised the problems the country is facing.”

A former member of the Bank of England’s rate-setting monetary policy committee, Andrew Sentance, said the package was “an emergency budget in all but name,”, but warned he was “not sure it will be enough”, with further action set to be needed in the autumn.

Mr Sunak was later due to discuss his package in a live Twitter debate with Money Saving Expert Martin Lewis, who has been harshly critical of the chancellor’s response to rising fuel and food prices.

Liberal Democrat leader Sir Ed Davey said that the package would be more than outweighed for many families by the tax hikes imposed by the chancellor this year.

“The chancellor is hammering families with a £800 tax hike this year, more than wiping out what he announced today,” said Davey.

“It is the Sunak scam, promising you help but picking your pockets while you’re not looking.

“The simplest way to help people right now would be for Rishi Sunak to scrap his unfair tax hikes, starting with VAT. That would put money now back into people’s pockets, boost the economy and support struggling businesses.”

The chancellor said that his one-off £650 payment will go to more than 8m low-income households on Universal Credit, Tax Credits, Pension Credit and legacy benefits.

Separate one-off payments of £300 will go to all 8m pensioner households entitled to the winter fuel payment, while £150 will go to individuals receiving disability benefits.

Mr Sunak also announced a £500m increase for the Household Support Fund, delivered by local councils, bringing its total value to £1.5bn and extending it from October until March 2023.

The new package brings the total cost-of-living support provided by the government to £37bn, including a £150 discount on council tax for those in bands A-D.

Mr Sunak said the windfall tax was justified by the “extraordinary profits” raked in by oil and gas companies as a result of the spike in commodity prices caused by post-Covid disruption to supply chains and the war in Ukraine. The hike will increase the headline rate of tax payable on profits from 40 to 65 per cent.

However, it will not apply to profits made before today, meaning that it will miss the massive earnings reported by energy companies earlier in the year. The temporary levy will cease at the end of 2025, but could be phased out earlier “if oil and gas prices return to historically more normal levels”, said the Treasury.

The new Investment Allowance incentivises companies to invest through saving them 91p for every £1 they invest, nearly doubling the tax relief available and meaning the more a company invests, the less tax it will pay.

The Treasury is to hold discussions with the electricity generation sector on how consumer prices can be reduced to bring them more closely in line with true production costs.