Conservatives have expressed concern at the windfall levy on energy companies to help fund a £21 billion giveaway.
27 May 2022
Rishi Sunak has refused to rule out a further emergency cost-of-living package next year despite alarm among some Tories at the impact on the public finances of the latest measures.
The Chancellor responded to weeks of mounting pressure over soaring energy bills with the announcement of a £21 billion giveaway to households, partly paid for by a £5 billion levy on the profits of oil and gas companies.
In the Commons on Thursday he told MPs the Government could not “sit idly by” while families across the country struggled to make ends meet.
However there was anger from some Conservatives, who said the “windfall tax” on the energy giants – which Labour had been pressing for since the start of the year – was “throwing red meat to socialists”.
There were also concerns that a £400 discount on energy bills for every household in the country, regardless of how well off they are, would further fuel inflation which is already heading towards 10%.
Paul Johnson, director of the Institute for Fiscal Studies, said the impact of a one-off series of measures would be limited, and the Chancellor would come under pressure to repeat it in future years.
“I think the biggest risk here is that the Chancellor will be tempted to do this again and again. If that happens then we really could be in for a bit of trouble,” he told the BBC Radio 4 Today programme.
“He has got the most extraordinarily difficult decisions to make later this year on public sector pay and then he will be under pressure, I suspect, come this time next year – when energy prices will still be high and households will be struggling – to put more money in.”
Mr Sunak insisted he remained a “fiscal conservative” and was committed to managing the public finances “responsibly”, but he refused to rule out another emergency package next year.
“People can judge me by how I’ve acted over the last couple of years,” he told the Today programme.
“I’ve always been prepared to respond to the situation on the ground, what’s happening to the economy, what families are experiencing, and making sure we’ve got policies in place to support them through that.
“I do want people to be reassured and confident that we will get through this. We will be able to combat and reduce inflation, we have the tools at our disposal, and after time it will come down.”
Labour shadow chancellor Rachel Reeves said the Government had “finally come to their senses” over the windfall tax but added that ministers needed to think now about measures to ensure they are not in the same position next year.
“All economists are saying that the energy prices aren’t going down any time soon,” she told BBC Breakfast.
“The Government could be starting a big programme of home insulation right now to take money off people’s bills – not just for one year, but for years to come. That’d be a practical thing that could be happening at the moment.”
Ministers remain divided on a windfall tax, with Business Secretary Kwasi Kwarteng having repeatedly warned of the impact on future investment in the energy sector.
Brexit opportunities minister Jacob Rees-Mogg reportedly raised his concerns at Thursday’s Cabinet meeting, later telling broadcaster there was not “a honeypot of free tax that governments can just pop into”.
Under Mr Sunak’s plan, almost all of the eight million most vulnerable households could receive at least £1,200 of support, including a previously announced £150 council tax rebate.
The measures include a one-off £650 payment to low-income households on benefits, paid in two instalments in July and the autumn, at a cost of £5.4 billion.
Pensioners will also receive a £300 payment in November/December alongside the winter fuel payment in a move costing £2.5 billion, while £150 will be paid by September to individuals receiving disability benefits.
Mr Sunak said £5 billion of the package would be paid for by a levy on the profits of oil and gas giants, and around £10 billion will be covered by extra borrowing.
Announcing the measures in the Commons, Mr Sunak told MPs it was worth £15 billion, but officials later conceded there was a hidden £6 billion cost to the announcement, taking it to £21 billion.
That is because over the next five years the original £200 rebate for energy bills, which was announced in February and doubled and turned into a grant by the Chancellor on Thursday, will no longer be paid back by consumers as originally planned.