What did we learn from the Chancellor’s spring statement? As James reports on Coffee House, Rishi Sunak’s promise of an income tax cut by 2024 offered a strong indicator of how – and when – the Tories plan to fight the next election. Meanwhile, the OBR’s finding that rising inflation will lead to the biggest fall in living standards since records began in 1950 highlights how even with the new immediate cost of living policies – including a 5p cut on fuel duty – the coming months will be painful for many households.
However, aside from cost of living, there was another problem Sunak’s statement highlighted: the Northern Ireland protocol. When the Chancellor unveiled the second of his measures aimed at immediately easing the cost of living, it came with an important caveat. For the next five years homeowners who have energy efficient devices such as solar panels installed on their properties will face zero VAT. He claimed his ability to do this was down to the UK leaving the EU and the laws and rules that came with that membership.
Sunak then said that the VAT cut would not apply to Northern Ireland because of the terms of the protocol – so the Treasury will need to get the European Commission to agree before the cut is extended to Northern Ireland. Sunak said he would try to do this and that Stormont would receive additional funding equivalent to the value of the VAT cut.
Given the protocol covers VAT, the same issue would arise were Sunak to follow the advice of shadow chancellor Rachel Reeves and axe VAT on energy bills. As I reported last week, unease is already building among Tory MPs over the protocol which ministers in government accept does not work as intended – instead exacerbating the differences between Northern Ireland and the rest of the UK. Foreign Secretary Liz Truss has received criticism after it was reported she was backing away from triggering Article 16. Others in government believe the UK could unilaterally bring in new measures and then wait to see how the EU responds. Today’s announcement will only add to pressure to secure meaningful changes to the current arrangement.
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