What is a windfall tax?

ENERGY companies could be hit with a windfall tax after reporting bumper profits during the cost of living crisis.

Campaigners, politicians and charities are among those calling for an extra levy on suppliers as families struggle to pay their bills.

The idea has been suggested as household energy bills have soared and the government is set to announce the measure to fund a fresh package of support for hard-up households.

The energy price cap jumped in April, adding almost £700 to the average gas and electricity bill and taking it to £1,971 a year.

Ofgem expects this to rise by another £800 in October this year, piling further pressure on household finances.

It would take the typical dual fuel bill to £2,800 a year, though customer bills can be higher or lower depending on usage.

Meanwhile, suppliers have reported a surge in profits this year as gas and oil prices have risen.

Shell made a record £7billion in the first three months of 2022 and BP made £5bn, its biggest profit in the last 10 years.

A windfall tax would see energy suppliers pay more money, which could theoretically be used to help households who are struggling with their bills.

We explain what it is and whether one will be introduced.

What is a windfall tax?

A windfall tax is a one-off levy placed on companies by the government.

It is designed to get firms to pay more tax if they have benefited from something they weren’t responsible for.

For example, in this case, it would target energy suppliers that have recorded sky-high profits.

Companies have benefited from rising wholesale gas and oil prices, pushed up by a surge in demand after the pandemic and the Russian war in Ukraine.

This has pushed up energy bills for customers and has also boosted supplier income.

It’s not clear how any future windfall on energy companies would work.

The Labour Party has repeatedly called for companies to be taxed on their extra profits – with the cash pumped back in to help lower bills.

It has suggested an increase of 10 percentage points on corporation tax, which it said would raise £1.2billion, the reported.

Windfall taxes have been used in the UK before.

In 1997, the Labour government placed additional tariffs on firms including BT and Scottish Power.

Gordon Brown, the Chancellor at the time, claimed the firms had been sold for too little when they were privatised by the Conservatives.

Will the government introduce a windfall tax?

The government has not confirmed whether it will introduce a windfall tax.

The Prime Minister previously ruled out an extra tax, saying it would put jobs at risk and stall investment.

But the Chancellor, Rishi Sunak, has warned North Sea oil and gas giants that they may face a levy unless they invest more in UK energy.

Mr Sunak said recently that “nothing is ever off the table”.

The Chancellor told Mumsnet in an interview recently “If we don’t see that type of investment coming forward, and if the companies are not going to make those investments in our country and in our energy security, then of course, that’s something I would look at.”

BP has vowed to invest with or without an additional tax bill.

But Centrica has likened any tax to “burning the furniture to keep warm”.

A government source told The Sun: “We want more ambitious plans, faster.”