A £400 rebate on electricity bills. A cash handout to the poorest households. And a windfall tax on the energy companies that generate the power to keep the lights switched on to try and pay for it all. Chancellor Rishi Sunak was back to doing what he likes to do best today: handing out vast quantities of free money, while making the UK a less and less attractive place for businesses to operate. It was billed as a fix for the ‘cost of living’ crisis. Yet very soon it will become clear it was nothing of the sort. After all, you can’t tax your way out of inflation; taking the approach Sunak has opted for will only make things worse.
By the standards of the Johnson administration, the Chancellor’s statement was an achievement of sorts. Sunak managed to hold out for several whole days after some scary inflation figures before caving in and unveiling a package of measures that even Gordon Brown in his pomp might have decided were too fiddly and complex.
It is an odd way to go about tackling rising prices. There are various different views on how to control inflation. You could restrict the money supply. You could hike interest rates. You could even have a prices and incomes policy as we did in the 1970s (fairly catastrophically, as it happens, but never mind). But you can search in the textbooks for as long as you like: higher government spending and higher taxes are not on the list.
Indeed, if anything, the opposite is true. If inflation, as a simple matter of mathematics, consists of too much money chasing too few goods, then there are only two ways of bringing it down again.