Matthew Lynn

Rishi Sunak’s energy bill u-turn is too little, too late

Sunak's tax tweak makes him look inconsistent and weak without winning any extra votes

Rishi Sunak’s energy bill u-turn is too little, too late
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A tweak to the landfill tax perhaps? A minor adjustment to the airport levy? Rishi Sunak no doubt stayed up late into the night sifting through all the most minor tax cuts he could offer before re-launching his campaign with a dramatic u-turn. In the end, he plumped for axing VAT on energy bills, promising to scrap it for a year. Sunak's campaign insist it will save the average household an estimated £160 as prices go up. The trouble is, it is too little, too late: if Sunak wanted to cut taxes he needed something far bigger and bolder.

Sunak's announcement is a sign of desperation. The Conservative party’s members look to have already chosen their next prime minister. Liz Truss is not way ahead in the polls because she is a fantastic speaker (she isn’t) or because she connects with ordinary people (she doesn’t). It is because she has correctly identified that putting taxes up to the highest level in 70 years was a terrible mistake. Boxed in by his record as chancellor, and as the person who put up those taxes, Sunak has been left hopelessly exposed. He is resorting to gibbering wildly about the risks to inflation, even though such hardline neo-liberals as Emmanuel Macron and Joe Biden have been cutting taxes as well. He clearly needed to do something, and quickly, just to stay in the race.

But VAT on energy? Really? In truth, this is ‘typical Rishi’: a small and fiddly tax cut that won’t make a huge amount of difference to anyone and which will be swallowed up by the rise in electricity bills anyway. It is a technocratic, Treasury solution, the sort of move Gordon Brown might have come up with on a bad day. Even he would have had the sense to dismiss it as irrelevant.

If Sunak really wanted to make a u-Turn on tax he should have abolished inheritance tax – a popular move, no doubt, in the Tory shires. Or he could have slashed stamp duty back down to one per cent, where it used to be before successive chancellor’s started using it to try to control the housing market. Or he could have put the starting level for the top rate of tax up to £80,000, even if that was one of the many promises broken by Boris Johnson, which would lift the ordinary middle class out of the punishing 40 per cent band. 

Sure, all of those decisions would cost more money. And it would be a shameless reversal of everything he has been saying for the last two weeks. But at least they would have an impact. Instead, he has gone for the most minor tax tweak imaginable, making himself look inconsistent and weak without winning any extra votes. It is the worst of all possible worlds – and it isn’t going to help him now.

Written byMatthew Lynn

Matthew Lynn is a financial columnist and author of ‘Bust: Greece, The Euro and The Sovereign Debt Crisis’ and ‘The Long Depression: The Slump of 2008 to 2031’