One of the key questions hanging over Westminster this morning (30 May) is whether Rishi Sunak’s mini-budget will be enough to protect people from the financial turmoil of the cost-of-living crisis.
Sunak announced a £15bn (that’s a big number) package on 26 May that provided one-off payments to all households as well as extra support for some of those receiving benefits. The package will be funded through £10bn in borrowing as well as a windfall tax on the energy and gas companies, which is estimated to raise £5bn. The government will hope the £10bn net injection into the economy will get people spending and stimulate some growth. But it also risks worsening inflation. That will put pressure on the Bank of England to raise interest rates to counteract any inflationary rise, which in turn will increase the risk of recession.
Nonetheless, the package was more targeted at the poorest in society than the Spring Statement and the support announced in February. However, the Resolution Foundation has calculated that once the packages are taken together they amount to around £1,200 of support for each household, which is fairly evenly spread across the income distribution. In the immediate term, the failure to better target the poorest – through an increase in benefits for instance, as Anoosh sets out here – risks their security. In the long term, it will do little to remedy income inequality which has worsened during the pandemic.
What about Labour? It has been banging on about a windfall tax for nearly five months and now the government has stolen its idea – is this a political victory or has the party been outmanoeuvred? There are mixed views on this. (You can read Andrew for the proposition here, and Philip Collins against here). While the move has stripped Labour of a key policy that differentiated it from the Tories, it’s worth noting how rare it is for Labour’s policies to cut through. It has set the economic agenda and further entrenched a paradigm shift towards a larger, more interventionist state. But the question is whether it will get credit for the policy going forward. Given that the government has now adopted the levy and gone further than Labour (Labour’s windfall tax would’ve raised around £2bn), that seems unlikely.
That question points to a problem for the government itself, however. Sunak wants to stress his low-tax, low-debt approach to the economy. But his proven record of tax raises and higher spending on the back of a series of U-turns will undermine that image. Then the question becomes, what is Sunak’s pitch to the public?
This piece first appeared in the Morning Call newsletter; subscribe here.
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