Liz Truss is expected to announce plans to freeze the energy price cap later today. Reports suggest the package could exceed the cost of the furlough scheme at over £100bn. There’s broad consensus about the need for a big policy. The question, and the politics, lies in who’s going to pay for it.
Fiscal policy comprises three main levers: taxation, spending and government debt. Pull one and the other two move. Truss appeared to understand these trade-offs when she said during her campaign that her government wouldn’t provide “handouts”. Now, however, she doesn’t want to admit that her tax cuts will ramp up the national debt at a time when higher interest rates make borrowing even more expensive.
The actual policy difference between Labour and the government on the windfall tax itself is minimal. Truss will retain Rishi Sunak’s windfall tax, which he announced in May, whereas Labour would make the tax retrospective. But 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 Truss is choosing to cut taxes for large corporations and the wealthy at the expense of the general taxpayer.
That’s why Labour’s attack line shows promise. As Starmer put it at PMQs yesterday: “Every single pound in excess profits she chooses not to tax is an extra pound on borrowing that working people will be forced to pay back for decades to come.” Labour’s approach is backed up by the polling. New research from Survation for 38 Degrees shows 74 per cent of people, including more Conservative than Labour voters, support paying for the policy through a windfall tax. Whereas, when given the choice, only 16 per cent support funding the policy through higher debt and general taxation.
Truss’s firmly held ideological commitments to low taxes has replaced Boris Johnson’s fickle approach to policy. Where Johnson made politics about style, Truss creates the opportunity for substantive disagreement. That suits Labour. Today’s announcement on energy policy will be the first in a series of ideological clashes, and its success will be key to the survival – or quick demise – of Truss’s prime ministership.