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  1. Economy
26 May 2022

The return of Red Rishi

The windfall tax shows the Chancellor is only popular when he’s forced into policies he doesn’t believe in.

By Anoosh Chakelian

Rishi Sunak is having an identity crisis. He keeps telling people he’s a tax-cutting Chancellor, while raising taxes. He calls borrowing “irresponsible”, while borrowing more. He warns that government support could add to inflation, while signing off broad cash giveaways.

Ideologically, he is an economically dry politician, fixated on fiscal responsibility – someone Tory backbenchers who hate big-state spending thought they could get behind. Yet he only distinguishes himself politically when he abandons those credentials, as with the furlough scheme and other relatively generous emergency measures during the pandemic, and his latest help for people facing rising energy bills.

His cost-of-living crisis response, though a long time coming, is a relief in the short term. Doubling the £200 energy bill discount and making it a grant instead of a loan, an extra £650 cash each for those who need it most, and a big tax on energy companies – these are all major, redistributive interventions.

There are problems with this plan too, of course. Both windfall taxes and household grants are one-offs, so there is the whiff of a sticking plaster about this with no genuine long-term security for struggling families. As the New Statesman has long reported, it would have been better simply to raise benefits in line with inflation in April. A flat payment instead of proportionally higher benefit payments also means the larger the household, the more you miss out: the obvious losers being families with children already bumping up against the benefit cap (which is still stubbornly stuck based on 2016 household income levels).

There are other problems, too. This particular windfall tax seems to come with big tax breaks for investment in oil and gas extraction (net zero who?).

“The investment allowance announced by the Chancellor demonstrates a lack of commitment to tackle the climate and environmental emergency,” says Miriam Brett, director of research and advocacy at the Common Wealth think tank. “There remains a need to address deeper, systemic failures in the energy market. Our research found that the Big Six [energy companies] have paid out the equivalent of 82 per cent of their pre-tax profit in dividends over the past five years, while their effective tax rate has been just 13 per cent in the same period.”

[See also: How Britain’s failure to reckon with global forces led to a cost-of-living crisis]

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Despite these shortcomings, the irony is still stark: Rishi Sunak only really seems to suit being a Labour Chancellor. Furlough was essentially a mass welfare scheme by another name. He’s nicked Labour’s windfall tax proposal, and then some: Labour’s plan would have raised £2bn or so, whereas Sunak’s potentially raises £5bn – although his entire package of measures costs £15bn. That’s lots of extra borrowing, for which a Labour shadow chancellor would be hammered in “how’re you gonna pay for it?” media rounds.

When Sunak tries to be a Tory Chancellor, it’s all scandals over his family’s tax affairs, “different breads”, enforced loans and insisting on hiking National Insurance to pay for health and social care. Some of which contributed to the crash in his personal approval rating earlier this year.

While the average Tory MP will be begrudgingly relieved by the measures he has just announced, which help them to reassure cash-strapped constituents and give them something substantial to say in interviews, Sunak’s big spender reputation – the one he’s tried to shake since the pandemic – will stick. Whether the “Dishy Rishi” gloss he accumulated early on returns too is in greater doubt.

[See also: The Conservative Party is lost]

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