The Economist - UK (2022-05-28)

22 Britain TheEconomistMay28th 2022

on Friday and Saturday night”. Ms Grayde clined to investigate a gathering in Mr Johnson’s private flat on the night MrCum mings resigned, in which celebratingspe cial advisers were said to have blaredabba songs. Some events Ms Gray found out about only through the press; she ac knowledges she may have missed more. Her conclusions are also rathercoy:the closest she comes to censuring Mr Johnson or Simon Case, the cabinet secretary,isto declare that the “senior leadershipatthe centre, both political and official,must bear responsibility for this culture”.She declares that progress has been madeon overhauling Downing Street’s manage ment, and hopes junior officials “havetak en the learning from this experience”.It isa report that manages to satisfy twoconstit uencies: a public that wants luriddetail and officials who hope to avoid theblame. Mr Johnson’s response to the reportwas a similar mixture of lucidity and evasion. He told the House of Commons thathewas “humbled”, and accepted “full responsibil ity” for his own breaches. Momentslater he was rather less humble, accusingSir Keir Starmer, the Labour leader, ofa “sanc timonious obsession”. He was righttodrop in on his staff’s leaving drinks—oneofthe “essential duties of leadership” anda way to boost morale. As for the bacchanaliathat later unfolded, he could not be responsible for he knew nothing of it. That appears to be his defence fora forthcoming House of Commonsinquiry into whether he lied to mps abouttheaf fair. The principle of individual ministeri al responsibility, by which ministers shoulder the errors of their unelectedstaff, whether they knew of them or not,has been out of fashion for some years.Mr Johnson has discarded it entirely. Mr Johnson seems yet again to have dodged the immediate threat. If 54mem bers of the parliamentary Conservative Party declare a lack of confidence inhim,a leadership ballot will be triggered.Inthe House of Commons, many Tory mps de clared themselves satisfied with MrJohn son’s apology. Libertarian types arethrilled that the affair makes it harder fora future government to introduce a lockdown. Others see danger through themurk. According to YouGov, a pollster, 59%ofvot ers, and 27% of those who voted Toryinthe general election of 2019, think Mr Johnson should resign. Tobias Ellwood, a Conserva tive mp, told the House that he hadlost faith in the prime minister. “A questionI humbly put to my colleagues is:areyou willing, day in day out, to defendthisbe haviour publicly? Can we continuetogov ern without distraction, given theerosion of the trust of the British people?Canwe win a general election on this trajectory?” Ms Gray’s report may not have cleared things up. The voters eventually will.n

Thecost-of-livingsqueeze

Thewind changes

O

nmay 24 thBritonsgotsomegrimbut expectednewsfromOfgem,theenergy regulator.InOctobertheiraverageannual energybillswillprobablyjumptoaround £2,800($3,505),overtwiceasmuchasa yearearlier.Intheabsenceofmoregovern ment support, two in five households wouldthenbespendingmorethan10%of theirincomeonenergy(seechart).That supportisnow,rightly,forthcoming.Rishi Sunak, the chancelloroftheexchequer, wassettoannouncea packageofmeasures toeasetheburdenofrisingpricesasThe Economist wentto press.Butinorderto helpfundit,it seemedcertainthatthegov ernmentwouldapplyaoneoffwindfall taxonenergycompanies’profits. Proponentsofa windfalltax,ledbythe LabourParty,havelongarguedthatitis bothfairandefficient.Fair,becauseshare holders ofoilandgasfirmsshouldnot benefitfromhighoilpricescausedbyRus sia’swaronUkraine.Efficient,becausea windfalltaxisa oneoffmeasure;affected firmswouldhaveneitherthetimenorthe incentivetochangetheirbehaviour. Thatlogiciscontentious.Whena wind falltaxwasfirstmooted,theConservatives themselveswereopposedontheground thatitwouldchillinvestmentjustasener gycompaniesshouldbecommittingmore capital to combat climatechange. Busi nesses wouldworrythatthetaxregime was becoming more arbitrary and less symmetrical,witha riskofadditionaltax esingoodtimesandnorelieffromthemin bad.“Unconservative,”saidsome. It nowseemsasthoughthegovernment

has got over those concerns and will ploughaheadwitha windfalltax.Thatis principallyforpoliticalreasons:thepolicy iswildlypopular.Butithelpsthatin 1981 MargaretThatcher,nosocialisticon,taxed elevatedbankprofits,which,she wrote, werethe“resultofourpolicyofhighinter estratesratherthanbecauseofincreased efficiencyorbetterservicetothecustom er”.BernardLooney,thebossofbp, anen ergygiant,seemedtounderminethecase againsta taxwhenhetoldtheTimesthata windfalllevywouldnotaffectplansforup to£18bnofinvestmentinBritainby2030. Yettheargumentfora windfalltaxre mainsunconvincing.Tomuteitsdeterrent effect,MrSunakwasexpectedtooutlinea levythatwillbelowerforcompaniesthat investinBritain.Butitisnotalwayseasy forfirmstoputcapitaltoworkquickly. AlastairSymeofCitigroup,abank,says thatbp, forexample,couldputmorecash intoexistingoilandgasfacilitiestoraise capacity,butit’s“atthemarginstuff”.New investmentsintherenewablessectorare constrained by governmentcontrolled factorslikeplanning permissionandli censingprocesses. Evenif a windfalltaxcouldbedesigned intheorytopreserveorsharpenincentives forshortterminvestment,it maystillhave a longertermdeterrenteffect.Preciseevi dence inthis area is frustratingly thin, partly because there have been so few windfalltaxesbutalsobecausetheyareof tenintroducedinunusualcircumstances, makingit trickytotellwhatexactlycaused anyfallout.Butthereisplentyofresearch which shows that general uncertainty crimpsinvestment. Thegovernmenthasfuelledsuchun certainty.OnMay23rda reportfromtheFi- nancialTimessaid thattheTreasurywas consideringthwackingelectricitygenera torsaswellasoilandgasproducers.The sharepricesofaffectedfirmslikeCentrica, sseandDraxdroppedsteeplyinresponse. Evenif thatideaendsupbeingditched,the factthatitwasconsideredwillhaveintro duceddoubtaboutthestabilityofthetax regimeintothemindsofinvestors. Thequestionofhowmuchanytaxrais esalsomatters.Themostimportantfea ture of any costofliving package an nouncedbythegovernmentistheextent towhichitprotectsthemostvulnerable. Thebestwayofdoingthatwouldbetoraise welfarepayments:changestobenefitsthat cameinto effectinAprilamountedtoa realtermscutof£15bninspending.ButLa bour’sproposalfora windfalltaxonoiland gascompanies,forexample,wouldraise onlyaround£2bn. Itnowappearscertainthata windfall taxwillbeimposed.Butit needstobehigh tomakea realdifference,riskinga more dampening effect on longterm invest mentincentives.NotveryConservative.n

TheToriesflip-floponthemerits ofwindfalltaxes

The cap doesn’t fit Britain, households in fuel stress*, %

Source:Resolution Foundation

*Spendingmorethan10%ofincome on fuel †Forecast ‡Adjustedforhousehold size

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The Economist - UK (2022-05-28)

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