London, (Parliament Politics Magazine) – With inflation hitting a 40-year high, runaway heating and fuel costs, and the rice of food on the rise, the cost-of-living crisis has become the defining domestic political issue and yet the Chancellor Rishi Sunak, has so far introduced what one Conservative MP described to me as “a distinctly underwhelming package of measures”.
Mr Sunak has resisted calls from Labour, the SNP and even from some members of his own Party to introduce a windfall tax, despite polling showing the measure would be “wildly popular” with voters and could raise as much as £2billion.
The Chancellor’s dead bat approach has been that it would undermine investment in the UK, hampering the long-term goal of reducing the UK’s dependency on fossil fuels, especially from places like Russia.
Yet, this defence was dramatically cut away when BP boss Bernard Looney admitted, after the announcement of the company’s biggest quarterly profits in a decade, that a tax wouldn’t alter their investment plans.
Now has come a softening of the Government’s tone. A windfall tax has become something that the Treasury is looking at although still not the favoured option, while desperately trying to remind people that a package of measures announced just a few weeks ago totalled a whopping £22 billion.
The big problem for the Chancellor is this what was billed as a significant package of measures has failed to live up to the billing. Indeed, critics have highlighted that the effects of the overall budget in March was to increase taxation to the highest level in 70 years at a time when other countries have cut taxes, something that has agitated a lot of fiscal Conservatives and economists.
While specific measures have also fallen flat. The council tax rebate has not been received by millions of households and is relatively small when set against the jump in average fuel bills. The cut in fuel duty was eroded in days with some suggesting it was not fully passed on to motorists and households face another jump in heating bills later this year with analysists predicting anything between ÂŁ500-ÂŁ1,000.
No wonder, this publication has struggled to find a backbench Conservative MP willing to write in support of the Government’s current response. I even contacted the Conservative Party’s HQ to ask if they could help find someone who would write an article. The silence has been deafening and resonates with conversations I have had with MPs who think more measures will be announced imminently and certainly before the summer recess.
So, what does the Government have to do now?
There is talk that Ministers are considering cutting taxes to boost business investment, another council tax cut, increasing the warm homes discount, further change to Universal Credit to allow those in receipt of this benefit to keep more of their earnings.
Yet do any of these single measures, or a combination of them, be enough to solve the Chancellor’s political problem. Do they amount to a comprehensive narrative that the Government is on the side ordinary votes who are being squeezed hard?
The answer will probably be no.
Take for example a possible cut in business taxes. In more normal time, business leaders and most Conservatives would welcome such a cut, but instead company bosses highlight the Chancellor’s plan to increase Corporation Tax from 19 per cent to 25 per cent, the impact of green levies, national insurance rises and surcharge on dividends.
Perhaps this explains why Mr Sunak has certainly tried to dampen down expectations, with his recent speech to the CBI, where he told business leaders he could not “protect people completely’ from the cost-of-living squeeze. There is no measure any government could take, no law we could pass, that can make these global forces disappear overnight”.
This might be true, but with a damaging set of local government elections still fresh in the minds of most and two difficult by-elections in Wakefield and Tiverton and Honiton later this month there are many backbench Conservative MPs who are getting restless. They are starting to think either the Chancellor, the former front runner to replace Boris Johnson, brings forward a bold-package of measures, or the Prime Minister will have to get a Chancellor who will. Either way it looks like the Conservatives are in for a bumpy couple of months.