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27 May 2022

Rishi Sunak has handed Labour the political advantage

The Chancellor’s embrace of tax and spend weakens the Tories’ strongest attack lines against the opposition.

By Philip Collins

Rishi Sunak is finding that people like him more when he gives them money. It is an uncomfortable revelation for a Chancellor whose every instinct is to husband his resources. Left to his own devices, Sunak would like to be a fiscal conservative of the George Osborne variety. Unfortunately, the world keeps intruding and demanding that he hands out cash.

First, Sunak had to plan the furlough scheme, by which he, in effect, nationalised work and provided a temporary basic income. Now, he has had to correct his omission in his Spring Statement and provide support for people struggling with rampant inflation in their food and energy bills. In between these two peaks of public spending, Sunak’s resources as a husband more or less shattered his political ambition. He briefly hinted, in a very dry Mais Lecture in February, that he would like to cut taxes and public spending. That didn’t last long. On Thursday he came to the House of Commons to set out his latest splurge of generosity.

This week Ofgem announced that the price cap on standard annual household energy bills would rise by £800 in October, which comes on top of a £700 rise in April. The Chancellor rather implausibly tried to kid us that the timing of announcement of a windfall tax on the energy companies was simply determined by Ofgem. The fact the headlines were all dominated by Boris Johnson giving a new sense to the term “party leader” was purely coincidental.

Whatever the immediate political reason for moving at pace, the Chancellor has certainly acted emphatically. He is increasing the universal Energy Bill Support Scheme, a discount for most households due to be introduced in October, from £200 to £400, and has added one-off payments to recipients of means-tested benefits as well as disabled people and pensioner households. The support has doubled in size and is progressive in orientation. Two-thirds of the proceeds will go to the poorest half of households. The poorest fifth of households will gain £823 a year; the richest fifth £296 a year. Using the benefit system to target his help also ensured that Sunak avoided the error of his two previous attempts, in which £6 in every £10 went to people in the top half of the income distribution.

The bill of £15bn will be paid for by two revenue-raising measures which, in his private moments, Sunak really doesn’t believe in. The first is that he will impose a windfall tax – a levy on energy profits, as he called it, of 25 per cent on the oil and gas firms. The second is that borrowing will increase even more.

There is a Tory precedent for Sunak’s tax. In 1981 the Conservative chancellor Geoffrey Howe imposed a levy on the banks which, he argued, had benefited from high interest rates. He also imposed a special tax on North Sea oil and gas firms. Yet Sunak following suit has not exactly gone down a storm with all of the Conservative Party. “Red meat for socialists”, said Richard Drax MP. “Tripe”, said Craig Mackinlay, changing the food metaphor but not the sentiment. The windfall tax was, only two weeks ago according to the totally erratic Business Secretary Kwasi Kwarteng, a “bad idea”. No doubt the shameless Kwarteng will now be doing the media round clarifying that when he said “bad” what he meant to say was “good”.

It can be disconcerting to see your opponents take up a policy they had previously rejected. Ed Miliband was furious when Theresa May decided to impose the energy price cap that the Tories, under David Cameron’s leadership, derided as “Marxist”. 

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The response of Rachel Reeves, the shadow chancellor, by contrast, was very well judged. Reeves welcomed the help on offer, took the credit for having had the idea in the first place (though strictly speaking it should be said that the Liberal Democrats got there first) and wondered aloud what had taken the Tories so long to realise that Labour had been right all along.

It is true that a windfall tax enacted by one person is not necessarily the same as a windfall tax enacted by another. When Miliband talked about a windfall tax it sounded like the approach he would like to take to every business. When Theresa May said the same thing it sounded like the one flirtation with business taxation in a life that was otherwise marked by complete acquiescence to the free market. The same policy can be representative and defining for one person but not for the other. Politically, an identical policy has different effects. Sunak will try to pass this off as merely a pragmatic response to a crisis and no doubt that is how he feels about it.

It is a clever strategy, nevertheless, for Labour to welcome the Chancellor to the ranks of unlikely social democrats. It causes trouble within the Tory party, which is split down the middle on the question of what half of them regard as excessive public spending. And it also frames the next general election in a way that is hospitable to the Labour Party. The best Tory line against Labour is always that the party of the left is too prone to spending other people’s money and too incautious when it comes to looking after the public finances. Not all problems can be solved by public expenditure, runs the usual Tory critique.

It is going to be hard to say any of this after a period of unprecedented Tory spending. Some of it – the furlough response to Covid-19, for example – can be passed off as an emergency response, but the impression will linger that spending is not just the preserve of the left. Tory men implementing Labour measures can only be good for the Labour Party.

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