Pressure mounts on Rishi Sunak to change course on tax


It presents Sunak with a challenge: how does he boost the economy and ease the cost squeeze without breaking the bank, at a time when Britain’s swollen deficit needs to be brought under control.

The Prime Minister had one suggestion back in 2016 – scrap VAT on household energy, charged at 5pc. He argued, prior to the EU referendum, that cutting the charge could be an important benefit of Brexit.

But challenged on that last week, Boris Johnson demurred and called a tax cut “a bit of a blunt instrument”.

“The difficulty is that you end up also cutting fuel bills for a lot of people who perhaps don’t need the support in quite the direct way that we need to give it. We need to help people who are in fuel poverty the most,” he said.

His comments indicate more targeted help could be on the table, in the form of lower bills or higher benefits.

Paul Johnson, director of the Institute for Fiscal Studies, warns that providing serious help for large numbers of households may be too expensive, particularly in the current climate.

“It is very hard to imagine a policy that would significantly shield people on average sorts of incomes from this without spending very large amounts of money,” he says.

He suggests a relatively affordable option may be to raise benefits in April by more than September’s inflation figure, to keep up with accelerating prices. It could be balanced with a smaller hike in 2023.

Dave Innes, head of economics at the Joseph Rowntree Foundation, proposes raising the warm homes discount for low income households’ bills from its current level of £140 per winter to £500, as well as broadening eligibility.

The downside is that this discount is funded by other bill-payers, whose costs would go up even more.

Johnny Marshall at the Resolution Foundation says the Government could transfer more cash to poor families, or to energy companies to cut bills.

“Say the price cap goes up from just under £1,300 to £2,000, the Government could give companies £300 per customer and the cap would go up to £1,700, which is more manageable and would push fewer people into fuel poverty,” he says.

Meanwhile John O’Connell, chief executive at the Taxpayers’ Alliance, suggests chopping green levies altogether as another option.

“Charges like the climate change levy have contributed to the tax burden reaching the highest level in 70 years,” he says.

“Instead of pretending it’s nothing to do with them, politicians must get real and roll back the tax rises which play a huge part in the rising cost of everyday life.”

It is not only prices but also taxes that are rising, hitting incomes and businesses.

Last week retail chain Next noted higher national insurance contributions (NICs) – due to rise by 1.25 percentage points for workers and the same for their employers in April – as a factor threatening “a tougher environment” through 2022.


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