Michael Settle: Why increasing numbers of Tories are coming round to a windfall tax

One day it’s ruled out, the next day it appears back on the table for serious consideration. Keir Starmer described the PM’s position as his windfall “hokey-cokey” but concluded Johnson would inevitably have to decide to impose the tax given the public mood.

The Downing St neighbours are once again at odds. Rishi Sunak, intrinsically against retrospective taxes, has nonetheless made clear “all options are on the table” given the scale of the cost-of-living crisis. Those next door with Boris Johnson’s ear are telling him a windfall tax would be “ideologically unConservative,” hampering investment and so reducing growth.

Yet it didn’t stop Margaret Thatcher in the hard days of 1981 slapping one on the banks. She later recalled the unhappiness it had created among the pin-striped fraternity but stressed: “They had made their large profits as a result of our policy of high interest rates rather than because of increased efficiency or better service to the customer."

A clear read-over can be made to the energy giants making excess profits, not due to their actions but simply because of increased demand post Covid, which is pushing up prices.

There is a belief at Westminster that increasing numbers of Tories, including some Cabinet ministers, are privately coming round to the idea; particularly as it looks like inflation, which in just a month has leapt from 7% to 9% – the highest level for 40 years – will soon hit double figures.

Another consideration is Whitehall polling showing a windfall tax is “wildly popular” with the public; eight out of 10 voters support it.

Hence Labour’s canny move this week to call a vote on the issue, which it strongly supports, and which forced Conservative MPs to clench their buttocks and obey their leadership by publicly voting against it.

Yet some Tories were defiant. Ex-minister Robert Halfon and Mel Stride, who chairs the Commons influential Treasury Committee, openly indicated support for a windfall tax.

Politically, Johnson, who avoided spreading clarity on the subject during PMQs, is in a lose-lose situation.

Rejecting a windfall tax would deepen the political hole he is in while introducing one would mean he wouldn’t get the credit for it because it would look like he had crumbled under pressure from Starmer, who would, with some justification, bag the credit.

In his speech at the CBI dinner, Sunak referred to his “plan,” the £22bn of support, including the £150 council tax reduction, the 5p fuel duty cut, the £150 warm homes discount, the increase to the National Living Wage, and the imminent lift to the National Insurance threshold.

He promised tax cuts for businesses in the autumn to pave the way for “higher productivity, higher living standards, and a more prosperous and secure future”.

But there were no specifics for the rest of us, only a hint that he would help the most vulnerable. “We stand ready to do more,” declared the Chancellor.

A number of possibilities are currently being floated: reinstating the £20 weekly uplift to Universal Credit; making the £200 loan to help with energy costs a grant; increasing the warm homes discount by anywhere from £300 to £600; bringing the promised 1p off income tax forward from early 2024 to April 2023, and cutting VAT, although a temporary reduction could stoke up inflation again when it expired.

Given cynicism perpetually lurks somewhere in the Gothic corners of Westminster, one suggestion is that Johnson is waiting to announce a package of measures just days before the good folk of Wakefield in Yorkshire and Tiverton and Honiton in Devon go to the polls on June 23 to elect their new MPs.

However, voters would see through such a desperate attempt to buy votes. Given where we are, both seats look set to fall into the arms of Labour and the Liberal Democrats respectively.

This week, MPs heard how some people had become so desperate over the cost-of-living pressures they were turning to shoplifting for essentials. Some 2.5 million people are now using food-banks. Petrol prices have hit a record high. Consumer confidence is weaker than at its lowest point during the global banking crisis or the Covid shutdown.

The Bank of England forecast inflation was likely to breach 10% in Q4. But it’s already gone through this barrier for many people.

Yesterday, George Eustice, the Environment Secretary, said Government analysis showed 75% of the financial pressures were down to the gas price and noted other factors included labour costs “as wages rise for the lowest paid”.

The highly-respected economic think-tank, the Institute for Fiscal Studies, said its analysis showed the bottom 10% of the population in terms of income were already experiencing an inflation rate of 10.9%, while for the richest 10%, it was 7.9%. This is because for the poorest households, gas and electricity costs make up a greater proportion of expenditure than for their wealthier counterparts.

The old way of calculating inflation, the Retail Prices Index, rose from 9% in March to 11.1% in April.

Analysts, meanwhile, are emphasising how pressure is now mounting on the Bank to increase interest rates, which will trigger rises in mortgage payments. In other words, the squeeze is only going to get worse for all of us.

Whatever Sunak comes up with, he can’t wait until the autumn. As Jake Berry, a driving force among northern England’s Conservative MPs, stressed: “Now is the time to act.” CBI chief Tony Danker also asked: “What are we waiting for?”

Dither and delay won’t do. Someone in Downing St must get a grip with a clear, speedy, viable strategy to help households survive the economic tsunami. No party of government ever won favour, or an election for that matter, looking like it was run by a bunch of headless chickens.

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