Chancellor Rishi Sunak is expected to bow to pressure to impose a windfall tax on energy companies when he sets out the government’s latest plan to tackle the cost of living crisis later.
Although not confirmed, Treasury sources have also not denied reports that he will scrap the requirement to repay the £200 discount on energy bills, and could increase the level of the grant.
Details are expected to be revealed in the Commons in the morning and are anticipated to target those who are suffering the most.
The announcement comes a day after Sue Gray’s much-anticipated report on lockdown-breaking parties in Downing Street was published, prompting critics to accuse the government of bringing forward the measures to distract from the fallout.
A windfall tax on oil and gas companies, which have benefited from global price rises, is widely expected to fund the measures.
Options that have been discussed include a further increase to the warm homes discount to help low-income households cope with rising energy bills.
Other measures discussed include increasing the winter fuel allowance, a further council tax cut or a VAT cut.
Calls for help for the most vulnerable were renewed this week after it was announced that the energy price cap is set to increase by a further £830 to £2,800 in October.
On Wednesday afternoon, a Treasury spokeswoman said: “We understand that people are struggling with rising prices, which is why we’ve provided £22bn of support to date.
“The chancellor was clear that as the situation evolves, so will our response, with the most vulnerable being his number one priority.”
Labour has been calling for a windfall tax on oil and gas giants for the past few months but the government has so far resisted those calls.
Mr Sunak told the Commons last week that the government does “not believe that windfall taxes are the simple and easy answer to every problem”.
“However, we are pragmatic, and we want to see our energy companies, which have made extraordinary profits at a time of acutely elevated prices, investing those profits back into British jobs, growth and energy security,” he added.
“I have made it clear and said repeatedly that, if that does not happen soon and at significant scale, no option is off the table.”
Offshore Energies UK, which represents the offshore oil and gas industry, warned a windfall tax would mean higher prices and do long-term damage to the industry.
Deirdre Michie, its chief executive, said: “This is an industry that thinks and plans long-term, so sudden new costs, like this proposed tax, will disrupt planning and investment and, above all, undermine investor confidence.”
Ms Michie said the industry is already the UK’s most highly taxed, paying 40% on offshore profits, and operators would send the Treasury £7.8bn this financial year.
She said that was equivalent to £279 a household and a windfall tax would mean a decline in production in years ahead.
Ms Michie said the industry is “actually very proud to pay our taxes”, but warned “the problem is when new taxes are imposed suddenly and without consultation”.