The pressure is growing on the government to reverse its opposition to imposing a windfall tax on the profits of energy companies. Senior Tory backbenchers are now publicly calling for the government to change course as inflation reaches 9 per cent for the first time since 1982.
The government say they don’t want to impose a windfall tax because it would hinder investment. But the truth is that No 10 hasn’t yet decided. One minister on the airwaves this morning said that while the government was “intrinsically” opposed to windfall taxes, sometimes they make sense. Meanwhile, the Times reports this morning that the Treasury wanted to introduce a tax but that No 10 blocked the plans. The government’s decision to make its MPs vote against a windfall tax this week makes a U-turn even more politically damaging. All of which comes as the Chancellor told business leaders last night that the government had a “plan” to address the crisis, promising to reduce and reform taxes for businesses without confirming when or what that would look like.
The government’s indecision over a windfall tax reveals that it doesn’t understand the magnitude of the problem. The lack of a plan has left ministers resorting to awkward exchanges about people buying value brands or working more hours. And the crisis is only going to get worse. Inflation is set to rise to 10 per cent by the end of the year. The energy price cap will increase again in the autumn. Those on lower incomes are particularly exposed. Figures from the IFS suggest the poorest are already experiencing an inflationary rate of 10.9 per cent; the low level of union membership means workers lack the power to counter such inflation by demanding higher wages.
A broader problem for the government is that it is being led by events rather than leading. (It’s worth noting this is a rare occasion where a Labour policy has cut through and set the political agenda.) The Queen’s Speech underlined this point. The government’s plans for the legislative year revolved around its two key 2019 campaign pledges: Brexit and levelling up. The cost-of-living crisis was absent even though polling suggests that is now the fundamental issue for voters. And it’s the leading contender to be the defining topic at the next general election. The risk for the government is that rehashing ideas that put them in power in 2019 rather than addressing the problem at hand won’t convince voters five years on.