CPS welcomes support for most vulnerable, but warns over windfall tax

The Centre for Policy Studies today welcomed the Government’s action on the cost of living crisis, but warned that the windfall tax would have adverse long-term effects.

  • The increased support the Chancellor announced today for households to help mitigate the cost of living crisis is extremely welcome, especially for the most vulnerable
  • Focusing support on those receiving means-tested benefits reflects what the CPS has called for previously and ensures money goes to those who need it most
  • However, the windfall tax will have adverse long term effects on investment which will only serve to make us more vulnerable to similar shocks in the future
  • Although added investment incentives are welcome, the windfall tax is an overall net negative to the UK’s attractiveness as an investment destination


Responding to the Government’s plans on cost of living, CPS Head of Welfare and Opportunity James Heywood said:


“This is a significant package of support targeted at those on the lowest incomes, and it will bring welcome relief to many families facing eye-watering increases in their bills. The Chancellor is right to use the means-tested benefits system to ensure cash goes to those who need it most, as we have been advocating for at the CPS. It is important to emphasise that these measures are pain relief, not a complete anaesthetic. The Government cannot completely offset the impact of rising prices for every household – many still face an incredibly tough year ahead.


“The measures strike a good balance between limited universal support, in recognition of the pressures all households are facing, and targeted support for those on the lowest incomes. They also reflect the need to get cash to households quickly and minimise the numbers of people falling through the cracks, given the limits on government’s ability to administer such schemes.”


Responding to the Government’s announcement that it will raise a windfall tax on oil and gas companies, CPS Head of Tax Tom Clougherty said:


“We remain highly sceptical of the fiscal and economic case for a windfall tax. We are concerned about the impact it could have on long-term investment in the UK energy sector, at a time when it is desperately needed – and we cannot afford to get into the habit of treating energy firms as cash cows. That said, the chosen version of the levy was not as bad as it could have been, due to the inclusion of generous investment allowances as a compensatory measure.


“In the longer term, incentives will do much more to attract investment than threats – so the key thing is to ensure that we develop an attractive and stable tax regime that supports the government’s energy security strategy and the transition to Net Zero, as well as investment in the UK more broadly.”

Date Added: Thursday 26th May 2022