Chancellor Rishi Sunak will today announce a new billion pound package of measures to deal with the cost of living crisis.

It comes as the government desperately tries to move on from Sue Gray’s damning report on lockdown breaking parties in Downing Street.  

It is understood the Treasury will pay for the support with money raised through a windfall tax on energy giants.

The government’s u-turn will be seen as a significant win for Labour, who have long called for a tax raid on the bumper profits of oil and gas firms. 

But last night Offshore Energies UK (OEUK), which represents the offshore oil and gas industry, issued a last minute plea, urging the Chancellor to look elsewhere for the money.

Deirdre Michie, chief executive of the body, said: “This is an industry that thinks and plans long-term, so sudden new costs, like this proposed tax, will disrupt planning and investment and, above all, undermine investor confidence.”

It is thought Mr Sunak will scrap plans for a “rebate and clawback scheme” that would have effectively loaned people a £200 to help with their energy bills from October.

Instead, the loan will become a grant. 

Reports this morning suggest the value of the discount could be increased to as much as £400, which would cost more than £10 billion.

The Treasury is also expected to hand out another council tax rebate, which would see consequentials come to the Scottish Government.

However, Mr Sunak looks set to have ruled out reinstating the £20 universal credit uplift. 

He has also rejected plans to cut VAT on energy and fuel.

A decision on general tax cuts, such as VAT or income tax, will be delayed until the Autumn Budget.

The challenge for the Chancellor is to not add further to inflation, which is currently running at a 40-year high.

The package comes as energy bills are due to soar by £800 to £2,800 a year this October.

At a Downing Street press conference yesterday, Prime Minister Boris Johnson – who has been sceptical about the need for a windfall tax – acknowledged that households “are going to see pressures for a while to come”.

He said: “We will continue to respond, just as we responded throughout the pandemic.

“It won’t be easy, we won’t be able to fix everything.

“But what I would also say is we will get through it and we will get through it well.”

A Tory party source said that arguments on a windfall tax had been “tested rigorously both within the Treasury and within the Government”.

“So there’s a high threshold that any package that we bring forward delivers more gain than pain, that the gain is worth the pain, that it does not jeopardise the investment that Conservatives are acutely aware of,” they added.

“That you don’t introduce random taxes that make the economic environment unpredictable.

“If you do it, it’s got to be because there’s more pain than gain, that you explain why you are doing it as a one-off, that you set the bar high, that it’s genuinely impactful, and you put in massive safeguards to make sure that you are not raising money out of the private sector at the expense of money they would put into the key things we need to develop in this country.”

Ms Michie said the oil and gas industry was already paying 40 per cent tax on their offshore profits.

Operators would send the Treasury £7.8 billion this financial year, she said, equivalent to £279 per household.

She added that the industry was “actually very proud to pay our taxes” but warned “the problem is when new taxes are imposed suddenly and without consultation”.

“The UK offshore industry needs a stable and predictable regime. A windfall tax may not affect projects already under way – but is likely to deter investments under consideration, for which funds have yet to be committed,” she said.

“The result would be a decline in oil and gas production in years ahead – just when the UK most needs reliable sources of energy.”

Meanwhile, Scottish Finance Secretary Kate Forbes has written to Mr Sunak outlining a list of measures she wants to see the Chancellor adopt.

The SNP politician suggested that £1,000 be given to those on the lowest incomes, with this to be delivered directly as cash support at periods across the financial year.

She told Mr Sunak: “Providing money directly, without a link to specific bills, would provide households with the means to manage the cost-of-living crisis however it is affecting them the most, whether it is on food, transport or energy bills.”

In addition, Ms Forbes said there should be a further £25 uplift to Universal Credit, and for the National Living Wage to be increased to £9.90.

She told Mr Sunak: “This package can be comfortably implemented within the £30 billion fiscal headroom available to you, even before allowing for any additional revenue from a windfall tax.”

The Scottish Finance Secretary said that “in the midst of such a crisis it would be unconscionable” for the Chancellor to “hold this funding in reserve to fund tax cuts in future years”.

She said the limitations on borrowing by devolved administrations meant the Scottish Government’s spending power was “also being eroded by inflation.”

Ms Forbes added: “As a result of escalating inflationary pressure, the Scottish Budget for 2022-23 was already reduced in real terms by 5.2 per cent relative to the previous year.

“This is not sustainable, and represents a creeping return to austerity.”

A Treasury spokesperson said: “We understand that people are struggling with rising prices, which is why we’ve provided £22 billion of support to date. 

“The Chancellor was clear that as the situation evolves, so will our response, with the most vulnerable being his number one priority.”