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In politics, 2022 is already the year of the guilty euphemism. It’s the year in which Downing Street tried to airbrush an unlawful lockdown party as “a work event”. It’s the year in which the invasion of Ukraine was cynically misdescribed as a “special military operation”. And now, in Rishi Sunak’s latest emergency mini-budget, it is the year when the government prefers a tax measure to be known as a “temporary, targeted energy profits levy”. Good luck with that one, chancellor. To the rest of us, what Mr Sunak announced on Thursday is unmistakably a windfall tax.
As such, it is better late than never. In a better managed political and economic culture than ours, in which effective regulation of markets was accepted as desirable in itself and action was taken when it was most needed, the measures might have been viewed as those of a strong and confident government. After all, an overheated energy market has been reined in. The consumer interest has been prioritised. The poorest have been given special protection. And there is a recognition that, temporary or not, the emergency may last up to two and a half years. All this is welcome.
But Mr Sunak’s package is the product of very different circumstances and very different motives. The chancellor performed his screeching policy U-turn because of government weakness, not strength. Ministers are desperate to do something popular. They are reeling from Partygate, which has damaged Boris Johnson irreparably. They are out of touch with public indignation over inflation and the cost of living. And the Conservatives are on the ropes electorally, with two difficult byelections to defend next month, the loss of which could cause further internal meltdown and leadership speculation.
Even so, the windfall tax has been introduced at a scandalously late hour. Oil and gas company profits were already spiralling out of control well before the Ukraine invasion. The case for action has been clear for months. Industry admissions that the gas market has become a cash machine ensured that the Liberal Democrats and Labour ran hard with the policy all spring. Other rich capitalist countries – France, Germany and Italy among them – have gone down a similar route already. Even so, it took the government’s own focus groups to push Mr Sunak into action. As with the pandemic, the government has been damagingly slow to act, which has resulted in needless suffering for the most vulnerable.
Even so, the chancellor’s measures are a rush job. They do not add up as convincingly as they should. Taxes on the electricity industry have been left vague. The amount raised by the windfall tax on gas and oil will not cover all the welfare support measures, especially the new £400 grant to all households – now larger than before and not to be repaid by consumers as originally intended. Borrowing will rise, suggesting more pre-election spending cuts elsewhere, under Treasury rules, if Mr Sunak wants to cut income tax. Bizarrely, fossil fuel firms can avoid the windfall tax by reinvesting profits but renewable companies cannot.
Two years ago, in the early months of the pandemic, Mr Sunak had an assurance that made him the government’s rising star and its next leader presumptive. Today his reputation is in decline. He has been badly hurt by the revelation of his wife’s non-dom status, which she has subsequently relinquished. His spring statement failed to calm fears that he was out of touch about the pace and scale of the cost of living crisis. His disagreements with Mr Johnson epitomise the government’s unmanageability and divisions. For all the welcome relief of Thursday’s measures, Mr Sunak and the government seem an increasingly inert force, with few goals beyond the next day’s headlines and attempting to survive the next byelection.