Conservative MPs to urge chancellor to tackle inflation with VAT cuts, energy bill support and improved benefits
Tory MPs are piling pressure on Rishi Sunak to take decisive action to deal with the cost of living crisis with measures such as cutting VAT, increasing energy bill support and raising benefits, as inflation is forecast to top 9% on Wednesday.
A string of Conservatives from across different wings of the party called on the chancellor to intervene within weeks, amid dire economic predictions about the squeeze on households.
One senior Tory, Sir Bernard Jenkin, the chair of the liaison committee that holds the prime minister to account, will warn on Wednesday that “the economic situation is far worse than the government is prepared to admit”.
He is expected to highlight new figures obtained from the House of Commons library showing pensioners and the lowest income households face paying £1,000 more a year for food and energy, arguing that any help for them cannot “wait until the autumn”.
“The measures that need to be looked at are £20 uplift in universal credit, transferring the cost of energy green levies to the exchequer, abolishing VAT on domestic fuel, increasing the warm homes scheme, and increasing the pensioners’ fuel allowance,” he will say.
Jenkin also backed the idea of cutting VAT overall as the present inflation and tax increases are “sucking demand out of the economy”.
His call for Sunak to take measures to help households were echoed by Stephen Crabb, a Tory MP and former work and pensions secretary, who said he did not “know a single Conservative colleague who isn’t acutely aware of the financial pressures facing their constituents and the need for some easing of the burden”.
Writing on ConservativeHome, he warned that “both the scale of the current crisis and the speed of its impact are alarming”. He said the way to protect the most vulnerable was “finding a way to increase pension and benefit levels to a realistic level long before the next uprating is due in April 2023”.
Michael Forsyth, a Conservative peer and former cabinet minister also called for the £20 uplift in universal credit to be restored, asking why the government had acted to increase the benefit during the pandemic but not when households wrestled with the current cost of living crisis.
Sunak and Boris Johnson
have been meeting in recent weeks to thrash out a package to help with the cost of living, but were initially insisting that any policies would not be allowed to cost money.
The chancellor has repeatedly ruled out bringing in an emergency budget that would be needed for fiscal measures such as tax cuts, but is facing a revolt on the Tory benches if he fails to take major action.
A source told the Guardian that officials have been examining a temporary cut to VAT similar to Alistair Darling’s action in 2008 of 2.5% or even as high as 5% but this was dismissed by Treasury sources as too expensive at around £7bn per percentage point cut and a “blunt instrument”.
Experts warn that while a VAT cut would have the effect of cutting prices in the short term, it would then push up inflation whenever it is reversed. “You’re basically moving inflation from this year into what may be an election year,” said one economist.
One person with knowledge of the Treasury’s thinking said: “The debate is, we’re going to have to do something for the poor; do we also need to do something for everyone?”
Aside from a VAT cut, other options that would offer help across the board would include increasing the generosity of the cut in energy bills due to come into effect in October; or bringing forward the income tax cut Sunak has planned for 2024.
New data from the Office for National Statistics is expected to show on Wednesday that inflation hit 9.1% in the year to April, as measured by the consumer prices index (CPI), as energy bills soared during the month. As the Bank of England comes under pressure over its failure to keep inflation under control, Mervyn King, the former governor, told LBC that central banks around the world including in the UK “have made serious mistakes in not acting much sooner” to raise rates.
“Most people are going to be worse off because of the higher food and energy prices and there is nothing that the UK can do about that. All that we can do is try to ensure that those who are worst hit by it are protected through the benefit system,” he added.
With fuel prices still high, Kwasi Kwarteng, the business secretary, wrote to petrol retailers on Tuesday raising concerns that the chancellor’s 5p fuel duty cut “is not being passed on in any visible or meaningful way”.
Speaking in a debate on cost of living in the House of Commons, a succession of Conservative MPs made it plain they expect Sunak to do something more. Conservative MP Derek Thomas said “more must be done now to help” on energy bills, while Tory MP Miriam Cates said the government should “urgently review universal credit rates”.
Tory MPs are also coming round to Labour’s idea of a windfall tax, with the chancellor now leaving the door open to that as an option to raise money to help households with their energy bills.
Conservative former minister Robert Halfon told MPs: “The oil bosses are earning multimillion-pound salaries and getting multimillion-pound bonuses, they are in essence in my view the new oligarchs and I would urge him to consider both a windfall tax on the oil companies which we can then use to cut taxes for the lower paid or cut energy bills, and also introduce a pump watch monitor to make sure that there is fair competition, that consumers get a fair deal at the pumps.”
Speaking in the Commons, Ed Miliband, Labour shadow climate change secretary, said that a windfall tax had the backing of former Conservative leader William Hague, and claimed similar measures had been used by past chancellors including George Osborne.
He added: “The truth is, they have run out of excuses, and amidst the chaos and confusion about what their position is, I think a massive U-turn is lumbering slowly over the hill. But I say this to the chancellor: swallow your pride and get on with it.”
MPs are reporting a surge in their constituents struggling to deal with the cost of living crisis, while charities are increasingly sounding the alarm about dire cases of people not being able to manage. Ian Lavery, a Labour MP, told the Commons that shoplifting is on the increase as desperate people hit by the cost of living crisis are stealing “sanitary products and soap powder”. Another Labour MP, Paul Blomfield, said some people in his constituency have attempted suicide in response to the rising cost of living.
One charity said on Tuesday that families struggling to cope with energy bills are seeking shelter in McDonald’s, with hard-pressed parents and children spending their evenings in the fast food restaurants, relying on the facilities as an emergency kitchen, bathroom and living room.
“People are buying their kids a Happy Meal for a few quid and keeping them warm inside. Then they wash and brush their teeth in the sinks and watch television for hours on the free wifi,” said Matthew Cole, chair of the trustees of the Fuel Bank Foundation, a body which tries to help families with their bills.
One of the UK’s largest food wholesalers also warned that soaring food inflation could force schools to choose between offering smaller portions at lunchtime and using cheaper ingredients.
Andrew Selley, the chief executive of Bidfood, a food distribution business with an annual turnover of nearly £2bn, said schools would be facing tough decisions unless the government increased funding for free school meals.