The rising cost of domestic energy bills, estimated to reach £4,200 per year by January 2023, cannot be fixed by fiscal policy such as extending the current 25% windfall tax on oil and gas companies.
While the original windfall tax was estimated to raise £5 billion, the government’s £400 discount on UK consumers’ energy bills announced in July as part of their Energy Bills Support Scheme will cost them an additional £15 billion, which cannot be covered with a realistic increase on the windfall tax.
Following the Labour Party’s call for the UK’s windfall tax on oil and gas firms to be extended, Chris Denning, corporate and international tax partner at MHA, says any extension would do little to address the rise of domestic energy bills and a more radical approach may be required such as the introduction of an annual % price rise cap limit on energy bills to help struggling households amidst the cost of living crisis:
“In the immediate term, the Government should change tack and treat the crisis as it did with Covid-19 and deal with the increased costs directly, as demonstrated with the furlough scheme. This could be achieved by putting a legislative maximum annual percentage price rise cap on household bills and absorbing the additional cost. This could be recovered through a duty/levy on the gross price of each unit of electricity and gas sold.
“In the medium-term, the UK must implement a more robust, workable and cost effective strategy to transition away from fossil fuels. The UK’s reliance on natural gas is central to the current high energy prices. The quicker the government diversifies its energy supply away from a reliance on natural gas, the quicker it will improve the UK’s domestic energy security and help protect the country from energy prices increases internationally.”