The government has announced possibly one of the biggest peacetime public expenditures in history without saying exactly how much it will cost.
In the Commons today Liz Truss announced a new two-year energy price guarantee that will ensure a typical household will not pay more than £2,500 a year for energy from 1 October. The Prime Minister also confirmed that the planned £400 in support, announced by Rishi Sunak when he was chancellor, will go ahead. Similar support will be offered to businesses, which aren’t protected by the energy price cap. The package will be funded by debt, but the cost estimates won’t be published until the Chancellor’s fiscal statement later this month.
In the Commons Keir Starmer chose not to attack the government over the cost of the package, given that Labour supports a price freeze. You’d expect that role to fall to sceptical, fiscally conservative Tory backbenchers, who are likely to have supported Sunak for the party leadership. But today the response of such MPs was muted. Mel Stride, chairman of the Treasury Select Committee, broadly welcomed the proposal but warned against its impact on inflation. Mark Harper, a critic of the government’s immense spending during the pandemic, wanted to know how the government would calculate the costs of the policy. Without access to the details of the policy the scrutiny in the Commons was light. At one point the proceedings descended into arguments about why each party didn’t build more nuclear power plants when in government, exposing the collective short-termism of British politics.
Instead of the cost of the policy, which we do not know, Starmer focused on the funding. The actual policy difference between Labour and the government on a windfall tax on energy companies, which have profited from higher prices, is minimal. Labour wants to expand the policy while the government will leave the tax as it was announced in May. Neither policy will raise the necessary funds.
However, Labour is correct to pose the question: who will ultimately pay? As I wrote in today’s Morning Call, once you include Truss’s plans to cancel a £17bn-a-year rise in corporation tax and a £13bn-a-year increase in National Insurance, it becomes clear that she is choosing to cut taxes for large corporations and the wealthy at the expense of the general taxpayer. That’s a fruitful line for Labour.
In any case, these political questions were quickly overshadowed by the Queen’s ill-health. When the news broke in the Commons, the tone dampened and the benches quickly emptied. Politicians may not be inclined to debate government debt right now, but they’ll need to soon.
[See also: New fracking and oil drilling doesn’t just fail Britain, it fails the world]