The Times - UK (2022-05-27)

Believe it or not, US gun

deaths are declining

Gerard Baker

Page 27

Sunak’s splurge will buy him only six months

The cost-of-living crisis is so severe that despite spending an extra £15bn the chancellor will have to do more in the autumn

Comment

absorbing the whole energy bill rise

for those on means-tested welfare, it

should be.

Yet there is a recognition among

cabinet ministers that, come the

budget in October, the government

will have to do more. Sunak may

have surprised with his largesse but

these sums will really only keep the

wolf from the door. This

living-standards crisis will go on long

enough that it won’t be the final

intervention that ministers will have

to make.

During Covid, the government had

the benefit of the doubt as it

responded to the crisis. Voters rallied

to the flag. This crisis is very

different: ministers have little political

capital in the bank. Partygate has

shaken voters’ faith in the Tories.

Sunak’s decision to abandon his

plan to claw back the discount on

energy bills in future years suggests

that he and other senior ministers

know this squeeze is going to be the

dominant issue from now until the

next election. Ultimately, any hope

of a Tory revival rests on a sense

that the government steered

households and the country through

the coming economic storm.

James Forsyth is political editor of

The Spectator

Tories also know that to keep a

dividing line with Labour they have

to state how they can pay for what

they are promising. One Johnson

ally supportive of the tax says: “If

you don’t make some effort to show

how you are funding it then people

say ‘can’t we just use the magic

money tree again’.” The final clincher

for the windfall tax is that without it

the help announced yesterday would

have been a lot less generous.

The political test for this package

is not just whether it saves some

households from months of cold

showers or destitution but whether it

provides a base from which the

government can get through to the

autumn. The question is whether it is

generous enough to hold off

demands for more money. Given that

the Sunak package is essentially

equivalent to the government

Rishi Sunak sought a way to offer help

without expanding the size of the state

is the most contentious part of the

package in Tory circles. There are a

slew of ministers who don’t like the

idea. Some take issue with it being an

unexpected form of taxation. Others

argue it is badly timed, given that the

UK needs to attract more investment

into its energy sector.

Kwasi Kwarteng, the business

secretary, has made this point to

colleagues. And then there are those

who just don’t like doing something

they argued against when Labour

proposed it. They fear it risks

suggesting a sea-change in favour of

Labour and left-wing ideas. Certainly

Rachel Reeves, the shadow

chancellor, was quick to claim it

showed that Labour was winning the

battle of ideas.

Johnson has gone ahead with the

tax for several reasons. First, he has

been persuaded by the Treasury that

these firms are making exceptional,

wartime profits; that the money they

are pulling in is largely because of

how Russia’s war has hiked prices

rather than because of any great

innovation on their part. Johnson’s

primary concern was about

maintaining investment, so the

generous capital allowance

(combined with BP saying it

wouldn’t change its plans) addressed

his worries.

Johnson himself has always been

an ideologically heterodox politician.

He is less worried than some in his

new team about whether a policy fits

a particular definition of

Conservatism or not. He has also

been around the block enough to

know that voters care much less than

politicians do about U-turns and who

came up with an idea first. He knows

that the overwhelming priority for

the government, as it seeks to shore

up its position, is to show voters it is

on their side and wants to help with

the coming squeeze.

W

hen Alan Greenspan
was chairman of the
US Federal Reserve,
he took an unusual
interest in men’s
underwear. His theory was that
pants were an easy item for
gentlemen not to replace. After all,
threadbare undies would be seen
only by a limited number of people.
So, one of the first signs of hard
times was a decline in the sale of
male underwear.
Today you don’t need to know
anything about the state of men’s
underwear to know that living
standards are being squeezed. The
rise in inflation is being driven by a
spike in energy and food prices,
goods that people can’t defer the
purchase of. With the energy price
cap expected to rise even more in
October than it did last month, the
government had to do something.
Hence yesterday’s announcement of
a £15 billion giveaway.
Some will argue the size of the
package is a tacit admission that the
£9 billion of support offered before
the energy price hike last month was
too little. But when that package was
announced the expectation was that
energy prices would start to come
down, as post-Covid supply caught up
with demand. Since Russia invaded
Ukraine it has been clear that energy
prices will stay high for the foreseeable
future. Rishi Sunak’s hope that people
could pay back the £200 discount on
their bills over the next few years was
simply no longer feasible.

If the government had failed to

act, there wouldn’t just have been

families unable to pay bills. We

would almost certainly have had a

recession. Surging energy bills would

have taken so much cash from the

rest of the economy as to tip it into

negative growth. The chancellor’s

stimulus gives the country a fighting

chance of avoiding this.

One of the challenges for Sunak

and Boris Johnson was to offer help

without permanently expanding the

state. Covid changed ideas about

what government could and should

do. This cost-of-living crisis

(estimated to be the biggest hit to

living standards since records began)

could further widen the state’s role if

the Tories are not careful. In a sign

of the times, one minister is even

sympathetic to the French system in

which the state owns an energy

company, helping President Macron

to keep prices down in this, an

election year. However, there is

increasing Tory backbench

unhappiness: that the size of

government is always increasing,

that they are no longer rolling back

the frontiers of the state but pushing

them forward. One senior MP

complains that as a “liberal, low-tax

Tory it is very hard to see what the

purpose of this government is”.

That’s why Sunak restricted

himself to one-off payments rather

than new entitlements or things that

would be hard to roll back (such as a

rise in the rate of universal credit).

A significant part of the funding

comes from a one-off measure too: a

windfall tax on energy providers. This

Even these sums will

really only keep the

wolf from the door

This squeeze will be

the dominant issue

until the next election

James

Forsyth

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