UK Labour proposes windfall tax for energy prices

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UK Labour proposes windfall tax for energy prices

The UK's main opposition Labour Party has proposed extending Britain's windfall tax on oil and gas companies, saying the proceeds should be used to fund a freeze on energy bills over the winter.

After months of pressure, the levy should be backdated to January, raising an extra 8 billion to help finance the current 1,971 $2,392 annual limit on household energy bills.

The Labour plan, announced by Keir Starmer on Monday, will put renewed pressure on the UK government and leadership contenders Rishi Sunak and Liz Truss to come up with new proposals to mitigate what threatens to be the nation's biggest cost-of-living crisis in decades. The average household energy bill will go up to more than 3,500 in October and to over 4,200 in the first quarter, a crushing blow for many homes, according to analysts.

Starmer said in a statement that this is a national emergency. Labour's fully-funded plan would fix the problems immediately and for the future. The national conversation has been dominated by warnings that millions of low-income Britons are facing misery due to power prices spike. Britain is already beset by a summer of discontent, with inflation rampant, interest rates rising and strikes bringing train service to a halt.

Even as the economy sputters toward what's been predicted to be a recession lasting more than a year, the weeks-long leadership battle between Truss and Sunak to replace Boris Johnson has exposed the heart of government. Johnson will be in place until his successor is named in early September, but his administration won't make any major fiscal decisions in the meantime.

Labour said that a freeze of the energy price cap would cost 29 billion, be paid for with extra 8 billion from oil and gas firms, 14 billion from already pledged government funding and 7 billion from reducing the government's debt interest payments on inflation-linked bonds.

The initial 25% tax on the profits of oil and gas firms was introduced in May after Labour called for the policy in January, hitting companies such as Shell Plc and BP Plc. The UK is still weighing whether to levy the tax on the profits of electricity generators.

Truss, who is the frontrunner in the race to be Britain's next premier, said she opposes introducing new windfall taxes, while Sunak says he is open to the idea.

The British government is drawing up other options for how to reduce bills over the winter, ready to be chosen by the new prime minister when they take over the post on September 6.

The Sunday Times reported that a Treasury proposal is about to introduce a lending program for suppliers that would reduce household bills by 400 this winter. Scottish Power Ltd. and E.ON SE, two of the country's biggest energy suppliers, are proposing government-backed loans to keep prices capped, the newspaper said.

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