London Playbook: Cost of giving — Party tricks —
Blair’s new project
BY ESTHER
WEBBER
May 27,
2022 8:16 am
POLITICO
London Playbook
By ESTHER
WEBBER
Good Friday
morning.
LISTEN UP:
POLITICO’s Westminster Insider returns for a new season, with brand new host
Ailbhe Rea. She takes us inside the lobby — into parliament, down the famous
Burma Road, out to a Downing St lobby briefing and then off to the Red Lion for
a debrief afterwards. Her guests include BBC legend Andrew Marr, former PM
(deputy) spox Ali Donnelly, lobby stalwart Harry Cole, former Guardian boss
Alan Rusbridger, the Daily Mirror’s Aletha Adu and (obvs) POLITICO’s own Jack
Blanchard. Don’t miss it.
DRIVING THE
DAY
COST OF
GIVING: Rishi Sunak will tour the broadcast studios this morning after setting
out a major package of support for households, which many thought was long
overdue. The chancellor announced measures worth £15 billion, paid for in part
by a 25 percent windfall tax on oil and gas firms’ profits, which as long ago
as last week No. 10 said it was “not attracted to.” The scale of the
tax-and-spend plan presented by Sunak makes it seem very much like a budget in
all but name — and one auspiciously timed to help turn the page on Sue Gray’s
report on Partygate. We can expect to hear from the PM on this theme today as
he pops up in the North East. In the grand tradition of budgets, the devil is
in the fiddly detail. While it is landing much better than the spring statement
in some quarters, it’s also serving to expose some of the gaping faultlines in
the current Conservative Party. Playbook will take you through the inside story
of the not-an-emergency-budget and how it’s playing out.
First
things first: Every U.K. household will get an energy bill discount of £400
this October, while households on means-tested benefits will also get a payment
of £650 to help with the cost of living. There is additional help for
pensioners in the form of one-off £300 payments, £150 to individuals receiving
disability benefits, and a £500 million uplift in the emergency Household
Support Fund, allocated by councils in England. The devolved governments will
receive equivalent funding. Energy firms will pay an additional 25 percent tax
for the next 12 months, with a 90 percent tax relief for firms that invest in
oil and gas extraction in the U.K.
Rishi’s
rebate: Sunak will not be keeping his £400 — he’ll be donating it to a local
charity, rather than returning it to the Treasury coffers.
**A message
from MSD: Did you know that more than 35 countries around the world – including
Australia, Canada, the USA and Germany – already provide routine chickenpox
immunisation as part of their national immunisation programmes? It’s time now
for the UK to Stop the Spots: find out more here.**
Why now?
There was some smacking of foreheads among Treasury observers who asked why
this wasn’t done a lot sooner or in the form of a budget. The overall cost is
£21 billion once you take into account the earlier giveaway to help with energy
bills — originally drawn up as a loan, but which now won’t be repaid. This
prompted Sky News’ Ed Conway to observe that when you announce big policies in
a budget it means “showing your workings, as opposed to a rushed-out
announcement and a vague press release.” A Treasury official defended the
decision to act now rather than in the spring “because no one was clear in
March about a) how long the Russia-Ukraine war would go on for and b) it’s only
become clear in the last few weeks how large the [energy] price rise will be in
the autumn.”
Labour’s
lament: Shadow Chancellor Rachel Reeves, who of course has been arguing for a
similar tax, said it showed the Tories had lost “the battle of ideas” and had
arrived at “the common sense solution” months too late. She criticized the
chancellor’s record on delivering promised compensation to households and
called for a cut in VAT on energy bills.
How’s it
going down otherwise? The chancellor’s latest intervention has landed well
among the Conservative MPs who are most worried about the cost of living
crisis. Robert Halfon, who came out in favor of a windfall tax a couple of
weeks back, told Playbook he was “over the moon” and Sunak was demonstrating
“compassionate Conservatism” in action. Stephen Crabb, a former work and
pensions secretary who’s been critical of the government’s approach so far,
said: “The size of the intervention today is commensurate with the scale of the
challenge that is clearly emerging around cost of living. We’ve come a long way
from talking about MOTs or even things like the 5p fuel duty cut.”
Behind the
scenes: Playbook hears Sunak has been holding meetings with groups of around 20
backbench MPs over the past few weeks to listen to concerns. One 2019 MP for a
deprived constituency said “he’s clearly taken our feedback on board,” adding
that “it strikes a fair balance between helping people see that this sort of
stuff isn’t free and giving the cash injection we wanted.” The tax relief on
investment appears to have been key in bringing skeptics on board. Andrew
Bowie, whose Aberdeenshire seat is home to many oil sector jobs, admitted that
while “I obviously wasn’t keen on it, if it had to happen, I am much happier
with this version” including the doubling of the investment allowance and a
three-year sunset clause.
Wonk watch:
The Institute for Fiscal Studies’ Paul Johnson — who gave the chancellor short
shrift back in March — hailed it as a “big, expensive package” which is “hugely
redistributive, taking from high earners and giving to the poor.” The
Resolution Foundation said it “rightly fills the gap they left by prioritizing
those hit hardest by the cost-of-living crisis,” and the Centre for Policy
Studies praised a “welcome relief” for poorer families, but raised an eyebrow
over the economic case for a windfall tax.
Not
everybody’s happy: But this is the Tory Party — you already knew that. The
Times’ Steven Swinford and Oli Wright report that Business Secretary Kwasi
Kwarteng and Brexit Opportunities Minister Jacob Rees-Mogg are both annoyed by
the energy sector levy, with Rees-Mogg arguing the money should come from cuts
to infrastructure projects. He told Sky’s Beth Rigby: “People need to
understand that there is not a tax that you can take that is economically cost
free. Doesn’t matter which tax it is, it will have an economic consequence.”
Comrade
Rishi: The punchiest contribution in the Commons came from Richard Drax, who
accused Sunak of throwing “red meat to socialists.” First time for everything,
I suppose. Another disgruntled MP told the Sun’s Kate Ferguson they’d been made
to feel like “prats” after being whipped to vote against a windfall tax just a
week ago, while another grumbled to the i’s Paul Waugh: “Reeves sounds more
Tory than our own chancellor right now.” A couple of Tories texted Playbook
more in sorrow than in anger, saying they were “uncomfortable on the principle”
and “anything that puts doubt into shareholders returns is not good.”
Taxing
times: While the £400 handout was pasted on most front pages, it wasn’t all
rave reviews. The Daily Mail asks: “When WILL Tories get back to just cutting
tax?” Fraser Nelson’s column on the front of the Telegraph accuses the PM and
chancellor of putting the country in a “high-tax trap,” and City AM goes with
its own suggestion for cutting energy bills: “Would the last free marketeer to
leave the Tory party please turn out the lights.”
Backlash to
the backlash: Halfon tells Playbook: “I’m not interested in ideology. I’m interested
in doing the right thing for millions of people in our country who are
struggling.” An unnamed Tory tells the Sun’s Kate Ferguson that colleagues
attacking the bailout package are “ideological nut jobs living in a fantasy
world” who “should spend less time at the Adam Smith Institute and more time
down at Lidl.”
Also not
happy: Oil and gas companies. The FT’s George Parker, Nathalie Thomas, Chris
Giles and Jim Pickard have got the pithy read on this, with North Sea oil and
gas operators including BP warning of a “multiyear” assault on their profits
that would “drive away investors” and cut production.
Magic money
tree: Aside from the £5 billion that the windfall tax on energy companies is
expected to raise, questions were building among some fiscal conservatives over
where the rest of the cash to fund a £15 billion package will come from. At
least some is likely to be funded by better-than-expected tax receipts, a boon
flagged by spending watchdog the Office for Budget Responsibility (OBR) after the
latest public spending figures were published. Around £10 billion more than
hoped is likely to be hauled in, judging by the OBR’s commentary on April’s
figures. They were “particularly strong” the watchdog said, and — blessed be
the bankers — some of this was down to high income tax takes on bonuses in the
financial sector.
Small
print: There are a few other holes worth pointing out. Economist Duncan Weldon
has an excellent blog highlighting the import of the announcement as well as
some of the gaps, including a lack of assistance for smaller firms also being
clobbered by energy prices. Craig Beaumont of the Federation of Small
Businesses tells Playbook: “Absence of protection for vulnerable micro
businesses outside the cap is still stark,” raising concerns that they may end
up closing their doors in the autumn if it becomes too expensive to run.
Any more
for any more: In the Mirror, Dan Bloom points out further tricky details,
including a longer wait for tax credit claimants and the absence of anything
new for carers or specifically for households with children. The Independent’s
Saphora Smith and Anna Isaac zero in on the implications of tax relief on
fossil fuels — questioned not just by green groups but oil execs who say it
sends a “messy” message on government’s priorities. And the Mail’s Jason Groves
forced the Treasury to admit that second home-owners will receive £400 per
home.
Where will
it end? Perhaps more fundamental than any of the aforementioned pitfalls is the
question of where the Treasury goes next. To an extent, Sunak is back in
pandemic mode: handing out cash to stem a severe crisis. Yet, if anything, it’s
less clear where this crisis ends and what he can do if the squeeze continues
or gets worse. Despite the sizeable price tag, Sunak can be seen sticking to
his instincts with (supposedly) one-off outlays and time-limited taxes, and
resisting measures to ratchet up spending via the benefits system. One senior
Conservative said: “Rishi will be hoping and praying this will keep them going
until the autumn and then into the next [benefits] uprating cycle.” Writing in
the Times, James Forsyth predicts it won’t be enough: “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.”
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