There was a time not so long ago when it seemed Rishi Sunak was auditioning to be the next James Bond. Debonair, stylish, and popular with a particular kind of under-sexed female commentator, Sunak matched looking good in black tie with being the hottest property in British politics. But an unpopular Spring Statement, a row over his wife’s non-dom status, and a looming cost-of-living crisis have left the Chancellor looking more like Austin Powers than 007.
So today’s announcement of a package for those struggling with paying their soaring food and energy bills had an underlying political element. Could the Chancellor mirror Mike Myers’ superspy, and prove to the political world that he had his mojo back? The answer must be a wholehearted yes – even if it has left a few on the Tory benches cross that he is stealing Labour’s clothes.
For those hoping the Conservatives might cut the size of the state and the tax burden sometime soon, today’s announcement will not have been much fun. The Chancellor announced £15 billion worth of handouts, including a £650 payment to 8 million low-income households, a £300 payment to pensioners via the winter fuel allowance, and £150 for individuals on disability benefits. He also turned the Energy Bills rebate from a loan to a grant and doubled it to £400 per household.
The case against the package is clear. After more than two years of the public becoming used to the Government paying their bills for them, this is another costly handout that further dents Sunak’s credentials as a low-tax, small-state Conservative. This is especially as the major measure announced to finance this package came in the form of a crunching u-turn liable to raise the hackles of the pro-business right: a windfall tax. Well, of sorts.
The Chancellor didn’t call it by that name, and rightly so. This was no Labour windfall tax, but a “temporary targeted energy profits levy”. Rather than being the left’s brunt instrument, this “pragmatic” approach to taxing the energy companies is designed to disappear when prices return to more normal levels and includes an 80 percent investment allowance aimed at minimising the amount of the levy companies need to pay based on how much they invest. Most importantly, it will raise £5 billion, £2 billion more than Labour’s offer. It is about as pro-business as such a levy could be.
Yet with the package in total costing £15 billion, it suggests the Chancellor has been forced to do exactly what he didn’t want to do, and dip into those higher-than-expected tax receipts he hoped to use for tax cuts across the next two years. One might think that would have pleased some on the Tory backbenches who have long hoped the Chancellor would use some of his fiscal headroom. No dice, alas, but not many were as damning as Richard Drax, who suggested the Chancellor was throwing “red meat to socialists”.
To both MPs, and to anyone else heckling Sunak today, I would simply say this: wake up and smell the coffee. Rightly, Sunak began his statement by outlining where the inflation problem has come from, and why it is such a challenge. He was right to establish what was and wasn’t within his purview to tackle. This is an international problem, and one that Britain is particularly vulnerable to through our links to the European energy sector and our tight labour market. But it is one that we can do something about, and inaction would be disastrous both politically and morally.
Not all possible action is within the Chancellor’s ability. He must budget for a rise in interest rates from the Bank of England, which are already sending debt interest repayment costs soaring. And as much as he would like to cut taxes on business and prioritise growth, he cannot magic up the levels of investment required to boost our anaemic productivity overnight. That is the jam tomorrow, which he hinted would be coming in the Autumn budget. The jam for today was that the most vulnerable households will receive £1,200 a year – exactly the priority we called for on Monday.
Frequent readers of my economic missives (yes, both of you) will know I believe the Chancellor sits in a fiscally responsible tradition stretching back to Howe and Lawson. Whilst his political antennae need a bit of work, his economic instincts are sound. Conservative MPs hoping for unfunded tax cuts would see inflation surge, debt repayment costs spike, and the public apathetic. If you are already worried about what increases to the money supply during the pandemic has done for our rate of inflation, then suggesting further unfunded borrowing seems rather wrong-headed. This was a package designed for the most vulnerable – the handouts to the middle-classes can wait.
To balance competing interest as judiciously as Sunak managed today – a levy here, a dip into extra revenues there – takes all the consummate skill many thought he lacked with the Spring Statement. Whilst Rachel Reeves gave a hearty speech in reply, the Chancellor held his ground, justified his u-turns, and pointed out just how much more generous his package was than anything Labour had to offer. Undoubtedly, Sunak has his mojo back. He may be unlucky to be at Number 11 through a pandemic, war, and cost-of-living crisis, and he may well be back announcing more measures before too long. But his performance today made it seem very unlikely he’ll be swanning off to Santa Monica any time soon.