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The Guardian - UK
The Guardian - UK
Politics
Rowena Mason, Aubrey Allegretti and Rob Davies

Rishi Sunak hints at U-turn on UK oil and gas windfall tax

Rishi Sunak
Sunak also hinted at more help for people on energy bills in the autumn, but claimed it would be ‘silly’ to support households now Photograph: Peter Cziborra/Reuters

Rishi Sunak has opened the door to a windfall tax on oil and gas companies despite previously dismissing the policy, as Labour accused the government of burying its head in the sand over spiralling bills.

The chancellor hinted at a possible U-turn on a tax on oil and gas providers, having repeatedly refused to countenance the idea in the past when suggested by Labour and the Liberal Democrats.

It comes as Keir Starmer branded Boris Johnson the “Comical Ali of the cost of living crisis”, suggesting the government was in denial about the financial pressures facing households and bereft of new ideas.

Speaking to Mumsnet, Sunak said he had not gone down the road of a windfall tax because he did not want to put off investment in new oil and gas extraction, highlighting a recent £25bn investment by one company in the North Sea.

But he added: “What I would say is that if we don’t see that type of investment coming forward and companies are not going to make those investments in our country and energy security, then of course that’s something I would look at and nothing is ever off the table in these things.”

Hours earlier, Dominic Raab had dismissed the idea of a windfall tax as “disastrous” and “damaging”, while Boris Johnson rejected it at Wednesday’s prime minister’s questions as a “tax on business”.

However, the Tories are coming under intense pressure over their lack of ideas on how to deal with inflation running at more than 7% and energy bills soaring even higher.

Johnson held a brainstorming cabinet meeting on Tuesday where ministers suggested relaxing rules on how many children can be cared for by nursery staff and allowing less frequent MOTs to help people save money.

But the ideas were criticised as inadequate by Labour, while Torsten Bell, the chief executive of the Resolution Foundation thinktank, said the government had “lost the plot” if it thought its ideas would make a substantial difference to people’s lives.

“Our problem is a big cost rise for almost everyone that is harder for low/middle-income households to bear. So the answer is either reducing that cost rise for, or raising the income of, those households. The benefits system is by far the easiest way to do that. Obviously,” he said.

Starmer made the comparison between Johnson and Comical Ali – the former Iraqi minister who gained cult status for his outrageous lies – during a fractious prime minister’s questions, with Starmer saying Johnson was complacent about people’s “blindingly obvious” economic problems.

The Labour leader said a mooted plan to let motorists get MOTs lasting two years instead of one made the ill-fated 1990s “cones hotline” look “visionary and inspirational”. He said Johnson was “only just waking up to the cost of living crisis” and had acted like an ostrich.

Johnson accused Starmer of “droning on” and dismissed his call for a windfall tax on oil and gas companies to help bring down people’s energy bills, saying: “This guy is doomed to be a permanent spectator.”

In their final public pitches before next week’s local elections, the two leaders traded blows during a session that was focused mainly on the economy. Starmer said the UK was on course to have the slowest growth and highest inflation in the G7, and he said Johnson was failing to properly manage the economy.

In a series of targeted questions designed to pin responsibility for the cost of living crisis on the government, Starmer said ministers were making life worse for working people with last month’s “tax-hiking budget” and by failing to help those whose fuel bills have spiralled. “They’re the party of excess profits, we’re the party of working people,” Starmer said.

He said his party would ask oil and gas companies to pay their fair share, insulate homes to get bills down and close tax avoidance schemes by scrapping non-dom status.

Johnson dismissed the windfall tax on offshore energy companies, saying it would “clobber the very businesses that we need to invest in energy to bring the prices down for people across this country.”

Spending in the North Sea is set to hit £21bn over the next five years, according to a report issued in September 2021 by UK oil trade body Offshore Energies UK, indicating a higher annual rate than the £3.7bn of investment reached in 2020.

Shell is considering a U-turn on a plan that would have seen it abandon the Cambo oilfield in UK waters, after it became emboldened by the improving political, regulatory and economic picture. It reconsidered after a bumper 2021, thanks to higher oil and gas prices that sent profits soaring to $19.3bn, compared with $4.85bn the year before.

The company said this month it planned to invest £20bn-£25bn in the UK energy system over the next decade, although 75% will be on offshore wind, hydrogen and electric vehicle infrastructure, rather than North Sea oilfields.

BP’s boss, Bernard Looney, declared the company a “cash machine” after profits swung to $12.8bn, compared to a loss of $5.7bn the year before. “We plan to continue to invest in the North Sea,” BP said in its latest annual report.

Sunak hinted at more help for people on energy bills in the autumn, but claimed it would be “silly” to support households now. “We’ll see what happens with the price cap in the autumn, I know people are anxious about this and wondering if they’re going to go up even more,” he said. “Depending on what happens to bills then, of course, if we need to act and provide support for people we will, I’ve always said that. But it would be silly to do that now.”

The comments drew criticism from Labour. Tulip Siddiq, a shadow Treasury minister, said the chancellor was “out of touch” as families were “already feeling the cost of living crisis, hit by record rises in energy prices, record high petrol prices and staggeringly steep hikes in the cost of food and essentials.”

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