‘We can’t help everyone because it’s too expensive’

Tories facing a cost of living reckoning


Rishi Sunak says he has already done enough to shield Britain from the looming cost-of-living crisis. Every time the Chancellor is questioned on how he will shield people from soaring energy bills and inflation which far outstrips wage growth, he replies confidently that his £9bn package of grants and loans announced last month will do the job.

Independent experts, Opposition MPs and – crucially – Conservative backbenchers disagree. And on Wednesday, Mr Sunak will face a reckoning as he delivers his Spring Statement in the House of Commons. The Treasury wants this event to be as low-key as possible: rather than a mini Budget, the official view is that these statements should be nothing more than an update on the economy and the public finances.

But will an update cut it? The Bank of England is now forecasting that inflation will peak at 8 per cent this year. Petrol prices have hit their highest level ever, and heating bills will more than double in the autumn if the market price of gas remains at its current rate. One former Treasury minister told i the Chancellor would have no choice but to step in again, even if the intervention is smaller than those unveiled during the pandemic: “He’s going to have to do something, it just can’t be the full Covid.”

The senior Tory added that if Mr Sunak sticks to his guns, the Government will suffer in the eyes of the public just as it was starting to recover from the “Partygate” scandal. “Living costs haven’t really hurt us in the polls too much so far, but that is going to change,” the MP said.

Lord Hayward, a Conservative peer and polling expert, is more optimistic, telling i voters would conclude that any inflation linked to the war in Ukraine would be seen by voters as “part of what we’re paying for a fight for democracy”. He added: “You can say the oil price is high, petrol’s expensive.”

But other parties are rubbing their hands at the prospect of the Chancellor finally losing his shine. In focus groups, voters from across the spectrum have stopped bringing up popular Covid-era initiatives such as furlough when asked for the views of Mr Sunak, according to one person who has been running them for an Opposition party.

Speaking at the Conservative spring conference on Friday, Mr Sunak finally hinted he was willing to go further. He said he had “enormous sympathy for what people are going through at the moment”, adding: “That’s why we will always be there to make a difference if we can.” Over the weekend he is planning a media blitz with TV and newspaper interviews defending his position.

Mr Sunak is said to be “receptive” to approaches from Tory MPs with ideas for how to soften the impact of the crisis. Some argue Mr Sunak’s costly support packages throughout the pandemic have built him up a certain level of credibility and trust with the public – and, arguably, with his colleagues.

This, they suggest, means he can be “honest” with them about what the Government can and cannot afford to do: “He can say we can’t help everyone because it’s too expensive,” one said. “He is a pragmatist.”

For some MPs, the number one demand is delaying the rise in national insurance contributions which takes effect in just a fortnight and adds an additional 1.25 per cent levy to the tax bill of every worker. While both the Prime Minister and the Chancellor have stuck to their guns, one MP has suggested a way out: “If it’s about pride, they can now say that Ukraine is the reason they need to change course.”

But opinion is split and many backbenchers previously hostile to the policy have come round to it. Multiple MPs told i that raising national insurance was the right thing to do, and they do not see Mr Sunak reneging on this. “It’s cuts, borrowing or taxes,” one said. “I am not pro-increasing taxes but here it’s the best policy.”

That same backbencher added, however, that they would support removing green levies on energy bills to reduce the cost for households. And they would like to see the Government offering more support to big industries, such a steel.

Others have a particular concern for pensioners who are likely to have limited options for increasing their income and face a significant real-terms cut in their pension due to inflation and the suspension of the triple lock.

Duncan Baker, MP for North Norfolk, says living in a rural area like his own constituency can make things even worse for the elderly. “We have a double whammy of people relying on their cars more to get around and being off the gas grid so having to use heating oil,” he said. “Two or three years ago, oil per litre was 30 pence, it’s now £2. It’s unbelievable.”

Backbenchers are not short of ideas for how to help hard-pressed households. Suggestions submitted to Mr Sunak include bringing forward a scheduled increase in universal credit; reducing the tax rate faced by the lowest earners; cutting VAT and green levies on energy bills; slashing fuel duty; increasing the tax relief for people who need to drive as part of their job; cutting the universal credit “taper rate” again; and bringing back the triple lock.

Economist Tom Pope, of the Institute for Government, pointed out that the Spring Statement was originally supposed to be a simple update of the latest forecasts from the Office for Budget Responsibility – telling i: “In normal times, once a year should be enough for Chancellors to make changes to the tax system.”

But he accepted that this time around, there is a strong case for Mr Sunak to go further. “The Spring Statement is there to make policy changes if the situation has changed since the autumn,” Mr Pope said. “The situation has been so volatile that it is understandable – but there is a danger that you never return to the cycle. This should be a small, select set of changes.”

Both inflation and unexpectedly strong economic growth give the Chancellor cover to U-turn: a stealth tax rise announced in the Budget, which freezes the current payment thresholds for income tax, will raise £12.5bn more than expected because of inflation, while overall Government borrowing in the past year is forecast to come in £20bn lower than originally expected.

Mr Sunak’s two years in office have been dominated by a series of short-term interventions to prevent economic catastrophe, rather than building for the future, a fact which Labour’s shadow Chancellor Rachel Reeves has exploited – dubbing him a “high tax, low growth” politician.

A former Tory minister agreed with the assessment, saying: “We don’t seem to have many pro-growth policies, we’ve pretty much given up on supply-side reforms.”

Mr Sunak’s future ambition to move from No 11 to No 10 is no secret. But he has been painstakingly subtle: one of his closest friends in Parliament told i they had not had a single discussion on the issue and insisted that anyone canvassing on his behalf was “doing it without permission”.

Allies of the Prime Minister are showing some signs of irritation – one No 10 insider said Mr Sunak “always gets to do the shiny stuff” by announcing interventions which often come with his signature plastered on them online.

His standing with colleagues remains high: one MP who entered the Commons at the same time as him said that “we always knew he was the most talented of any of us and the most likely to reach the top”.

Nevertheless, Wednesday will be a key moment in determining whether or not the Chancellor keeps his status as Britain’s most popular politician. According to Redfield & Wilton Strategies his approval ratings have slumped to +6, down from +35 last summer, as Mr Johnson’s fortunes have partially recovered. If voters continue to feel poorer, Mr Sunak’s fortunes will suffer too.