Britain announced a 25% windfall tax on oil and gas producers' profits on Thursday, alongside a package of support for households struggling to meet rising energy bills.
The announcement marks a change of heart for Prime Minister Boris Johnson's government which had previously resisted windfall taxes and called them a deterrent to investment.
Facing intense political pressure to provide more support for billpayers coping with what political opponents and campaigners have called a cost-of-living crisis, finance minister Rishi Sunak said energy firms were making extraordinary profits while Britons struggled.
"We are introducing a temporary, targeted Energy Profits Levy charged on profits of oil and gas companies at a rate of 25%," Sunak said.
"We're also building in a new investment allowance that doubles the relief for the energy companies that invest their profits in the UK."
Earlier this week, the energy regulator said that a cap on gas and electricity bills was set to rise by another 40% in October.
(Reuters - Reporting by Muvija M Andy Bruce and Kylie MacLellan, writing by William James, editing by Hugh Lawson, Frank Jack Daniel and Michael Holden)