Chancellor Rishi Sunak announced that a windfall tax will be imposed on energy firms alongside a package to help households with the cost-of-living crisis.
Both BP and Shell reported big profits this year as global oil and gas prices increased. Mr Sunak said a 'temporary, timely, and targeted' 25% Energy Profits Levy would be introduced reflecting extraordinary profits. UK energy firms will now pay an additional 25% tax for the next 12 months.
The levy is expected to raise £5 billion for the Exchequer and the legislation will include a sunset clause to ensure it is temporary.
The new levy will include a new 80% investment allowance, as an incentive for energy companies to invest.
The Chancellor also announced a £15 billion package of support for households.
Eight million of most vulnerable households across the UK will receive a new one-off £650 cost of living payment. There will also be separate one-off payments of £300 to pensioner households and £150 to individuals receiving disability benefits.
The October discount on energy bills will be doubled to £400 and the requirement to repay it over five years has been scrapped.
Mr Sunak said:
'We know that people are facing challenges with the cost of living and that is why today I'm stepping in with further support to help with rising energy bills.
'We have a collective responsibility to help those who are paying the highest price for the high inflation we face. That is why I'm targeting this significant support to millions of the most vulnerable people in our society. I said we would stand by people and that is what this support does today.
'It is also right that those companies making extraordinary profits on the back of record global oil and gas prices contribute towards this. That is why I'm introducing a temporary Energy Profits Levy to help pay for this unprecedented support in a way that promotes investment.'