Just three months ago, Chancellor Rishi Sunak told Britain that “we have a choice”.
In a Budget cri de coeur which had his Thatcherite admirers on the backbenches purring, Sunak asked: “Do we want to live in a country where the response to every question is, ‘What is the government going to do about it’?
“Where every time prices rise, every time a company gets in trouble, every time some new challenge emerges, the answer is always: the taxpayer must pay? Or do we choose to recognise that Government has limits? That Government should have limits?”
On Thursday the Chancellor answered his own question. To combat a looming 50pc rise in household energy costs, Mr Sunak reached for other people’s money to pay for a £200 discount on bills and offered a £150 council tax rebate for 80pc of households.
Even though Sunak intends to claw back the energy payouts with a £40 annual surcharge over the next five years, the £3.6bn council tax rebate will simply be added to borrowing, increasing a national debt already swollen massively to £2.3 trillion by the pandemic.
The cash injection comes weeks before a National Insurance increase and income tax threshold freeze hit millions of households in the pocket. While the NI rise alone raises £12.7bn a year the Chancellor – who publicly professed himself a “tax-cutter” at the weekend in a joint article with the Prime Minister – has opted to ease the pain by giving people some of their money back.
“They are taking with one hand and giving on the other hand,” says Gerard Lyons, Boris Johnson’s former economic adviser as London mayor.
The statement from the Chancellor also came just as the Bank of England added to the challenges faced by more than 2.2m households on floating rate mortgages by raising interest rates to 0.5pc amid fears that soaring energy costs could become embedded in higher wage demands.
The irony was not lost on economists such as TS Lombard’s Dario Perkins, who tweeted: “On the same day the Treasury has offered me a rebate for high energy prices, the BoE says it’s raising the cost of my mortgage (due to higher energy prices).”
Even setting aside the move from Threadneedle Street, the Institute for Fiscal Studies estimates that a worker on £30,000 will still be around £400 worse off after the Chancellor has finished handing him money while picking his pocket.
The frustration for many observers is that random giveaways appear to be papering over the cracks left by an energy market policy marked by incoherence over decades. Errors over delays to nuclear investment and gas storage closures have been compounded by green subsidies introduced under the Labour energy secretary Ed Miliband and culminating in Theresa May’s energy price cap.
James Sproule, Handelsbanken UK’s chief economist and a former adviser to Johnson in Downing Street, said “the road to hell is paved with good intentions”. He warned that the latest handouts “don’t speak to a strategic vision as to where we are going to go right now”.
Rather than knee-jerk tax rises and giveaways, Sproule is seeking a long-term plan to adjust the energy mix including mini-nuclear reactors, reviving fracking and renewables.
He argues that Boris needs to “get a grip”. “We’ve not set out the long term sustainable path and therefore people are nervous, and of course the Government’s just panicking and shifting money around to meet today’s immediate emergency,” Sproule says.
The latest confusing whirl of giveaways and tax rises comes at a time when the overall tax burden is on the way to its highest level since the early 1950s. Sproule says that the constant profession of tax-cutting while doing the opposite threatens fundamental damage to the Conservatives’ offer at the next election.
“If I was a Tory MP I would be really unhappy about the health and social care levy because I don’t think the money will cover the NHS,” he says.
“I think it’s going to be swallowed up and you’re not going to be able to take money out. You’ve either made a promise they’re not going to keep or they’re going to ask for even more tax rises.”
For other critics, the energy handout is yet more evidence of the big-state tax and spending behaviour shot through the Government’s poorly received white paper on levelling-up this week.
“The word “market” was mentioned 88 times,” says Lyons. “The word “Government” was mentioned 861 times.” Libertarian MP Steve Baker simply dismissed it as “socialism”.
Doug McWilliams, co-founder of the Centre for Economics and Business Research, agrees.
“The white paper is all about how the Government can spend money when practically the only example of levelling up that’s really worked in the country in the last 20 years is in the East End of London, and that happened largely without government money,” he says.
Despite Sunak’s assertions, the economist says “there has been a sort of move away from people taking personal responsibility, and [towards] expecting the government to solve things”.
In his view, the Chancellor needs to address that by cutting taxes and not raising them, tackling the post-Covid supply side challenge of hundreds of thousands of people dropping out of the workforce. McWilliams adds: “I think as we move towards people no longer having quite the same work ethic that perhaps our generation has, we are having to deal with the fact that you have to incentivize people to work, and you can’t rely on taxing them heavily.”