By Jaime Llinares Taboada

 

U.K. Treasury Chief on Thursday outlined a new 25% tax on the profits of oil-and-gas companies.

Rishi Sunak told the House of Commons that this is a temporary levy which will raise around 5 billion pounds ($6.29 billion) over the next year, and will be used to fund subsidies for households.

The tax will be phased out when oil and gas prices return to historically normal levels, Mr. Sunak said.

In addition, the Chancellor said the government is raising investment allowances so that, for every pound invested, companies get back a 90% tax relief.

Earlier this week, oil-and-gas industry lobby Offshore Energies UK said that a one-off windfall tax wouldn't sustainably help consumers and would reduce investor confidence in the U.K.

As the global economy recovered from the coronavirus pandemic, prices for energy commodities have soared in the U.K. and elsewhere. This was later exacerbated by the war in Ukraine. A barrel of oil in Europe today costs $114, up from $69 one year ago and $36 two years earlier.

The increase in the natural gas price has been even higher, and this commodity is directly correlated with the wholesale electricity market. This week the British regulator warned that the annual price cap for energy bills would rise to around GBP2,800 in October. This compares with GBP1,277 last winter and GBP1,042 in the same 2020-21 period.

Stronger energy prices have been boosting earnings for oil-and-gas companies since last year. Shell PLC reported an adjusted profit of $19.3 billion in 2021 and BP PLC made $12.8 billion, with both figures being the highest since 2018. Analysts are forecasting that their profits will rise further this year.

 

Write to Jaime Llinares Taboada at jaime.llinares@wsj.com; @JaimeLlinaresT

 

(END) Dow Jones Newswires

May 26, 2022 08:07 ET (12:07 GMT)

Copyright (c) 2022 Dow Jones & Company, Inc.
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