Rishi Sunak has announced a U-turn on imposing a windfall tax on energy firms, a move which other cabinet ministers have called “disastrous.” 

A windfall tax is a one-off tax on the profits of privatised utility companies – in this case on energy providers that have benefited from the surge in oil and gas prices cause by Russia’s invasion of Ukraine. 

It comes after Ofgem, the energy regulator, indicated that the energy price cap will increase by a further £830 to £2,800 in October. 

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The chancellor caved in amidst mounting pressure, implementing a policy which opposition parties have been calling on for months to help people struggling with the cost-of-living crisis. 

Liberal Democrat parliamentary candidate for Wokingham, Clive Jones, said: “His U-turn has really got to be welcomed because it’s what we have been calling for several months. Because it’s the right thing to do.” 

Sunak had been at odds with the Prime Minister about imposing the tax, which Boris Johnson said would “deter investment” in the energy sector. 

MP for Wokingham John Redwood also disagrees with the plan, calling it an “anti-business” tax. 

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Redwood said: “It should be about returning the extra tax they are collecting from heating, petrol and oil bills, not about imposing new taxes.  

“Threats of more taxes will just put off new investment and jobs. What we need is tax cuts on the energy bills consumers pay, to ease the squeeze on incomes. 

“The Chancellor needs to cut the cost of energy by cutting the taxes we have to pay on it, not dreaming up new anti-business taxes.  

“VAT and green taxes are a big part of the energy price problem. Cut inflation by cutting those taxes.” 

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As well as a 25 per cent windfall tax, expected to generate £5b, every household in the UK will be given £400 in October to help with an anticipated further hike in energy bills, a one-off £650 payment for the poorest households paid in two lump sums in July and the autumn,  

The new measures, worth £15bn in total, will also include separate one-off payments of £300 for pensioner households and £150 for individuals receiving disability benefits. The remaining £10b will come from further borrowing. 

The timing of the announcement, the day after the publication of the Sue Gray report into ‘partygate’, has led to claims that the government is trying to distract attention from the negative headlines about No. 10. 

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Cllr Jones said: “They have perhaps been waiting several weeks to make this announcement, which is just typical of this government. If you announce good news a day after bad news then the bad news disappears quickly.” 

Labour did not respond when approached for comment.