Households could save £1,000 on energy bills with windfall tax

Households are currently experiencing an unprecedented rise in their energy bills, which is being exacerbated by pressures in the wholesale gas and electricity market and the war in Ukraine. Originally, energy bills were expected to exceed £3,400 in October but are now being capped at £2,500 for the next two years under new Government plans. However, analysis of plans for a windfall tax on suppliers suggest that families could save up to £1,000 which could be useful during the cost of living crisis.

Last week, the Government debated its new proposal for an energy price guarantee which is set to cap household bills at £2,500 during this economic turmoil.

While this is significantly lower than October’s energy price cap, families will still see their energy costs go up next month.

On top of this, the price cap is still expected to rise for the foreseeable future which means the Government will have to borrow more to keep energy bills capped at £2,500.

As a result, many are calling for a windfall tax on energy suppliers which could save families around £1,000 down the line.

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What is a windfall tax?

This form of taxation would be a one-off levy on gas and electricity companies to mitigate the impact of rising energy bills on households and Government support to address the crisis.

Energy suppliers are currently reporting record profits due to an increased demand following the pandemic and a smaller overall market in the UK, after the collapse of many gas and electricity providers.

The former Chancellor Rishi Sunak introduced a 25 percent Energy Profits Levy which will affect profits made by companies from extracting UK oil and gas.

However, the new Prime Minister Liz Truss ruled out introducing a further windfall tax after introducing the energy price guarantee last week.

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How much would a windfall tax save households?

Despite the Conservatives’ reluctance to move forward with this policy, recent analysis of other parties’ plans suggest families could save around £1,000 through its plan for a six-month freeze on energy prices.

Experts from myfavouritevouchercodes.co.uk outlined how the Labour Party’s plan for windfall tax could result in a sizable savings boost for the average household.

They explained: “As part of Labour’s plan, £8billion’s worth of windfall tax on energy company profits would help families save approximately £1,000 per household throughout the six-month freeze. 

“The remaining £21billion would be funded by halting the proposed £400 payments for all households and lowering government interest payments on debt.”

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However, the personal finance expert emphasised that there are potential risks to implementing such a levy on companies which could hurt the UK’s economy down the line.

He added: “On the flip side, there are fears that a significant windfall tax could discourage large businesses, both in the energy sector and outside, from investing in the UK.

“If this turned out to be true, it would cause long-term damage to the economy and stunt its overall growth, which could be devastating.

“Everyone knows by now that the economy is struggling and a recession is likely, so inflicting long-term damage for short-term gain is a risk that needs to be seriously weighed up.”