Boris Johnson today hailed the Government’s energy bills support as a ‘big bazooka’ – although the Prime Minister admitted the payments won’t ‘necessarily’ protect struggling Britons from the full impact of the cost-of-living crisis.
On a visit to Stockton-on-Tees, Mr Johnson said the £21billion package of support announced by Chancellor Rishi Sunak yesterday was a ‘very, very substantial’ commitment’ to help families through ‘a bumpy time’ as household bills soar.
But he warned the measures – which include up to £1,200 for eight million homes across the country – would not ‘fix everything for everybody immediately’.
Meanwhile, Mr Sunak was forced to defend his extraordinary bailout amid a backlash from Tory MPs and ministers.
The Chancellor insisted handing out hundreds of pounds for every household was a ‘balanced’ response to soaring energy bills – and would have ‘minimal’ effect on inflation which is already forecast to top 10 per cent later this year.
However, Conservative backbenchers have voiced anger at the way he handed ‘red meat to Socialists’ and bowed to Labour by imposing a windfall tax on the surging profits of oil and gas firms to help fund the move.
Business Secretary Kwasi Kwarteng signalled that he is still opposed to the levy, amid fears it will crush investment in UK infrastructure.
And fellow Cabinet minister Jacob Rees-Mogg warned that the government borrowing to spend more is ‘deeply inflationary’, and extra taxes are not ‘economically cost free’.
Economists inflamed Tory splits by saying ‘Gordon Brown would have been proud’ of the way Mr Sunak redistributed money from the rich to the worst-off in his policies.
They also cautioned that he will be under huge pressure to renew the supposedly one-off bailout next year, as energy prices are still expected to be at eye-watering levels.
However, speaking to broadcasters on his visit to the North East today, Mr Johnson appeared to suggest the measures should be enough until the cost-of-living crisis eased.
‘What we are doing now is making sure we support people through tough times. It’s a big bazooka,’ the PM said.
‘I’m not going to pretend that this is going to fix everything for everybody immediately. There is still going to be pressure.
‘But it is a very, very substantial commitment by the Government to getting us through what will be still a bumpy time with the increase in energy prices around the world.
‘What I think it will also help us to do is to get us through until I believe the prices will start to abate and we will be in a much, much stronger position.’
Mr Johnson stressed that ‘people should recognise these payments will not necessarily cover the increased cost fully’.
He added: ‘We can’t cover every single cost that people are going to face, we’ve got to be realistic about that.
‘However, they will go a long way towards helping people.’
The PM also claimed the package was ‘massively, massively redistributive’ and ‘much more generous’ than Labour’s own plan for a windfall tax to fund cost-of-living help, as Mr Johnson insisted it would ‘protect investment’ in the economy.
Earlier, in a round of interviews after what amounted to a mini-Budget yesterday, Mr Sunak argued that he was still a ‘fiscal Conservative’.
‘Our estimate, and my view, is it will have a minimal impact on inflation,’ he said of the bailout.
Asked if the effect could be as high as 1 percentage point, he replied ‘no, much, much less than that, minimal’.
He argued that was the case because the help is ‘very targeted’ at those who need it most while money is being raised to pay for the measures.
Amid the fallout from his announcement yesterday, Mr Sunak:
- Confirmed that he will donate his own potential £1,200 benefit from the energy bill handouts to charity, and urged people who do not need the money to follow suit;
- Hinted he could bring in billions of pounds more by extending the windfall tax to ‘extraordinary’ electricity firm profits;
- Refused to rule out returning next year with another emergency package to ease the pain from soaring energy bills;
- Carefully dodged using the term ‘windfall tax’ after Labour accused him of bowing to their calls, instead saying he was introducing an ‘energy profits levy’;
The massive package of help for struggling families was unveiled after watchdogs warned that the Ukraine crisis means energy costs are set to soar again this Autumn – by more than 40 per cent.
The government performed an extraordinary U-turn on imposing a 25 per cent windfall tax on the surging profits of oil and gas firms, following weeks of wrangling in Cabinet.
But Mr Sunak attempted to soothe Conservative fury by saying the levy – which should raise £5billion in the first year – will be ‘temporary’ and there will be big tax breaks for companies that invest.
The £200 per household state loan for energy bills – which was due to take effect in October be paid back over the next four years – is being converted to a permanent grant and doubled to £400 to take the edge off the misery of spiking inflation for 28million homes across Britain.
Officials have confirmed that owners of second homes will benefit for each property. Mr Sunak will receive the benefit as he is believed to have multiple properties, although he does not directly pay utility bills in his grace-and-favour residences. It is understood the Chancellor will donate his to good causes in his constituency.
Eight million households on benefits will also get a £650 handout, paid in two stages in July and autumn – which will cost the Treasury £5billion.
It means that most of those families could be due a total of £1,200 over the coming months, including the previously-announced £150 council tax rebate for band A-D properties.
Pensioners who get winter fuel allowance will receive £300 extra, and he confirmed that the triple-lock will be applied to the state pension this year – likely to entail a double-digit increase. People on disabled benefits will get an additional £150.
The maximum that anyone could receive as a result of this package and the Spring Statement earlier in the year is £1,650, according to the Treasury.
The funding for the package is murky, as while the windfall tax will potentially last until 2025 the government has not estimated how much it will raise beyond £5billion in the first year. It will be ‘phased out’ when energy prices return to ‘normal’.
The costings are also open to question, as the universal handouts have been valued at £6billion – but in fact the true figure could be £12billion as previously half of the £400 handout was a loan and due to be recouped in the coming years.
Former minister Robert Halfon called the package an example of ‘compassionate Conservativism’ but fellow Tory MPs urged the Chancellor to cut taxes rather than deliver handouts.
‘The best way to help people is to lower the tax burden,’ said Sir Edward Leigh.
David Davis, a former Brexit minister, warned a windfall tax might cost more than it raised if it drove off investment.
But a defiant Mr Sunak insisted he was making the ‘right decisions’ and taking a ‘balanced’ approach.
He did not rule out returning next year with another emergency package to ease the pain from soaring energy bills.
Mr Sunak told BBC Breakfast: ‘We are sitting here in May, we don’t know what energy bills will be next April. I think people can judge me by my actions over the past couple of years.
‘I’ve always tried to be responsive to the situation that the country and the economy is experiencing, we’ll always act like that.’
The Chancellor suggested wealthy individuals who do not need the £400 energy bills grant can ‘join me’ in donating the sum to charity.
He told ITV’s Good Morning Britain: ‘I’m sure you will join me in giving that money to charity.’
Justifying the way the support was being delivered to all households rather than just the poorest, Mr Sunak said there are only a couple of ‘practical’ ways of delivering payments, either universally or through the council tax system, which could exclude some deserving individuals.
He told BBC Breakfast: ‘Second homes account for one or two per cent of the property stock.’
Mr Sunak suggested that sharp inflation-linked increases in pensions and benefits make next year make it less likely he will need to bring in another bailout.
But he told BBC Radio 4’s Today programme: ‘People can judge me by how I’ve acted over the last couple of years.
‘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.
‘In terms of ‘is it one-off?’, what’s happening next year, I’d go back to what I said earlier. 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.’
He added: ‘First and foremost I’m a fiscal conservative, I believe it’s incredibly important that I manage the country’s finances responsibly. That means after suffering the shock we did to get our borrowing and debt levels back on a sustainable trajectory.’
However, Mr Rees-Mogg delivered a shot across the Chancellor’s bows by telling Sky News that businesses were not a ‘honeypot’ he could raid for cash.
‘It’s a very difficult balancing act in an inflationary period,’ he said. ‘You have to get the balance right to ensure that the deficit doesn’t explode, because deficit spending during an inflationary period is deeply inflationary.’
‘And as I say, I think this is a balancing act, that it would be foolish for me to pretend it’s easy to get right.’
‘What I was saying there is that people need to understand that there is not a tax that you can take that is economically cost free.
‘It doesn’t matter which tax it is, it will have an economic consequence.
‘Whether it’s a pasty tax, or it’s an excess profits tax, there is an economic consequence, there isn’t a honeypot of free tax that governments can just pop into.
‘So as long as they raise the tax, knowing that it will have an economic consequence, which the chancellor does, then it is a matter of choosing between one form of revenue-raising and another.
‘There is no non-tax way, ultimately, of spending. It is either today’s tax, or it’s tomorrow’s tax through borrowing.’
