Ed Davey: Cut energy bills in April and bring in “bonanza bonus” tax on oil and gas bosses

EMBARGO: 00:01 Monday 27th February 2022

Liberal Democrat Leader Ed Davey is demanding the Chancellor cancels plans to hike the average household energy bill by £500 in April, and cuts people’s bills instead, combined with a new energy support package for businesses, schools and hospitals.

He is warning that new price hikes now will be a “hammer blow” to families and businesses already struggling and that action is needed now to save people from a “cost of living cliff-edge.”

On top of their windfall tax plan, the Liberal Democrats are now calling for a one-off “bonanza bonus” tax on oil and gas bosses making millions from sky-high energy bills, similar to the bankers’ bonus tax in 2009-10. The latest figures show top executives at BP and Shell got £17 million in salary, bonuses and pensions in just one year. The chief executive of BP received bonuses and benefits of almost £3 million last year, doubling his total annual pay.

Instead of the Conservatives’ plan to hike the energy price guarantee by £500, the Liberal Democrats want to scrap the bill hike and reduce the average energy bill to £1,971 - the level it was last April. This would save the average household an estimated £400 on their energy bills over the next 12 months. For the least well-off households, the Liberal Democrats want extra targeted support, including doubling the Warm Homes Discount to £300.

The party is also calling on the government to U-turn on its plans to slash energy bill support for businesses, schools and hospitals by 85%, and instead extend current levels of support for another six months.

The Liberal Democrat plan would mostly be funded through money already budgeted for energy support, but now unspent due to falling energy prices. Additional funds would be raised by a proper windfall tax on the record profits of oil and gas companies, including scrapping the fossil fuel investment loophole and raising the rate of the windfall tax from 35% to 40%. This could raise at least £15 billion more than the government’s current Energy Profits Levy. 

Liberal Democrat Leader Ed Davey said:

“The Conservatives’ plan to hike energy bills in April will come as a hammer blow to families already struggling with soaring mortgages and rents, shopping bills and tax rises. With no plan to deal with this cost of living crisis for people or businesses, this chaotic, out-of-touch Government is instead making it much worse because they just don’t get it.

“Rishi Sunak must act now to save families from a cost-of-living cliff edge, by cutting energy bills instead of increasing them. If there’s no extra energy help for businesses, it will be more than salad and vegetables in short supply as firms as well as farms are forced to close.

“To add insult to injury, it’s just obscene that Rishi Sunak is happy for energy bosses to rake in millions of pounds in bonanza bonuses, while families struggle to put food on the table or heat their homes. People deserve a fair deal - with a large cut to their energy bills, paid for by a proper windfall tax and a one-off levy on the bonuses of oil and gas bosses.”

ENDS

Notes to Editors

Household Plans

Under the Government’s plans, the Energy Price Guarantee (EPG) will rise from £2,500 to £3,000 in April. This means that in the three months from April, the average household bill will rise by the equivalent of £500 a year.

From July 2023, Ofgem’s energy price cap is expected to fall below the level of the Energy Price Guarantee, to around £2,200, meaning that the EPG will no longer offer protection from high energy prices.

We estimate that under the Government’s plans, the average household bill over the 12 months from April will be £2,369. 

Under Liberal Democrat plans, the Energy Price Guarantee would be set at £1,971 for the 12 months from April. That is the same level as the April 2022 Ofgem energy price cap. Amending the EPG from its current £2,500 to £1,971 would cut the average energy bill by the equivalent of £529 a year over the three months from April.

Under Liberal Democrat plans, the average household bill over the 12 months from April would be £1,971. This is £398 lower than under the Government’s plan (see table 1).

The Liberal Democrats are also calling for an additional package of measures targeted at vulnerable households to help them save hundreds of pounds off their energy bills. This would include doubling the Warm Homes Discount and the Winter Fuel Allowance, as well as kickstarting a new home insulation scheme starting with fuel poor households.

Note: We have used Cornwall Insight’s latest forecast of energy bills for each of the next three quarters. In Q3 and Q4 energy bills are forecast to drop below £3,000 meaning the Govt’s EPG will no longer apply. For Q1 2024 we have assumed energy bills remain the same as Q4 2023.

Business Plans

• Under the Government’s plans, support for businesses, schools, hospitals and care homes will be cut by as much as 85% in April. They are removing the unit price cap on business energy prices under the “Energy Bill Relief Scheme” and replacing it with a significantly smaller discount.

• In April, a typical medium-sized business (with mid-level energy consumption) will see a hit of around £6,600 a year. That’s an 85% cut in energy support.

• Liberal Democrats are calling for the existing “Energy Bill Relief Scheme” to be continued for another six months protecting businesses from higher bills.

Windfall Tax

The cost of the policy would mostly be covered by money already budgeted by the Government, which can now pay for additional support due to lower energy prices. The Resolution Foundation has found that based on current futures prices, the cost of the Energy Price Guarantee in 2023-24 is estimated to be around 90 per cent below the Office for Budget Responsibility’s costing made in November (£1.5 billion compared with £12.8 billion).

The Liberal Democrats are calling for a proper windfall tax on the super-profits of oil and gas companies, raising at least an extra £15 billion. This could be done by:

• Abolishing the fossil fuel investment loophole

• Raising the windfall tax rate from 35% to 40%

• Backdating these changes to the start of the energy crisis

Energy Executive Bonus Tax 

The Liberal Democrats are calling for a one off levy on the bonuses awarded to oil and gas company executives. This would be modelled on the Bank Payroll Tax introduced in 2009-10, which taxed bonuses over £25,000 at 50%.

Remuneration for Shell and BP 

N.B. Shell pay their salaries in €, but provide total remuneration figures for each of their execs in Sterling