LONDON — Promises, promises.
Rishi Sunak’s made his fair share of them as the U.K.’s top finance minister. He wants to reassure a party and public spooked by the climbing cost of living that taxes really will come down and wages really will go up.
“Going forward my priority is to cut tax and put money back in people’s pockets,” the chancellor of the exchequer said in a BBC interview on Sunday.
Yet as Sunak prepares to deliver his latest financial statement Wednesday against the backdrop of further, Ukraine-related economic turmoil, few are prepared to take those promises to the bank.
Major tax increases of Sunak’s own making — a new health and social care levy plus new taxes on dividend income — will take effect in April against a backdrop of soaring inflation and energy bills, sent even higher by Russia’s invasion of Ukraine. And Sunak’s statement comes just days after the Bank of England hiked borrowing costs, lifting interest rates from 0.5 percent to 0.75 percent.
Soothing talk last year from Sunak and his boss Boris Johnson about a post-Brexit high-wage economy now looks wide of the mark, too.
“Wages in cash terms are going up at a rate that any time over the past ten years, we’d have said is looking really quite healthy,” said Ben Zaranko of the Institute for Fiscal Studies, a non-aligned Westminster think tank. “The problem is that inflation is going up even faster — so in real terms wages are falling.”
Indeed, the pressure on household budgets is so acute that Sunak is widely expected to offer something to ease the pain, as lawmakers and charities warn a host of measures to offset energy costs announced earlier this year just won’t cut it.
Yet questions remain over just how bold Sunak — who shot up the popularity rankings during the pandemic as a result of a huge economic support package — is prepared to be. “I will stand by [the people] in the same way that I have done over the past couple of years. Where we can make a difference, of course we will,” he said Sunday.
Conservative MPs have been among the most vocal lobbyists for action in recent weeks, lining up in public and in a raft of private meetings to urge Sunak to do more.
Backbench parliamentarians say they have plenty of opportunities to put their thoughts directly to the chancellor, who is talked up in some circles as a future Tory leader. One Conservative MP said anyone who asks Sunak’s parliamentary aides for a meeting with the chancellor gets one, although they said he was in “listening mode” rather than giving away much about his plans.
In a sign of the pre-spring statement outreach, Sunak last week addressed the so-called “One Nation” caucus of center-right Tory MPs.
He’s already announced a help for people to pay energy bills after regulator Ofgem lifted a cap on prices by 54 percent in February. A household using a medium amount of gas and electricity can expect to see their bill to rise by around £693 a year or around £58 extra a month, according to the consumer group Which. Households will get £200 off those energy bills — but there’s a catch. That saving will be clawed back from future bills at a rate of £40 a year over five years.
“As useful as it is, I am not convinced that the scheme already announced is going to shield the most vulnerable customers from the further price hikes coming,” Stephen Crabb, a former Conservative work and pensions secretary, said.
A second Conservative MP said that while some of the electorate is sympathetic to the view the U.K. government had “inherited this through no fault of their own,” the mood could change quickly in April “when people really begin to feel it in their pockets.” Sunak will have one eye on the ballot box Wednesday — with the latest local elections a matter of weeks away on May 5.
Some contrast the apparent reluctance to go big on the cost of living with the huge support package Sunak — an instinctive free-marketeer wary of state intervention — put together to steer the British economy through COVID-19.
“We saw during the pandemic that the Treasury can be really fast-moving, really innovative, really creative,” a former Treasury adviser said. “It’s going to be really, really hard for any Conservatives who are knocking doors ahead of local elections to try and explain what the government’s doing on cost of living if it’s not addressed in that package.”
Sunak is also under pressure to slash taxes on fuel, with more than 50 Conservative MPs putting their names to a letter urging a fuel duty cut. Sunak has hinted that he could go down that route, telling the BBC Sunday that while he’s “not able to comment on tax policy,” he recognizes the “importance of people being able to fill their cars up, and that not being prohibitively expensive.”
Labour’s Shadow Chancellor Rachel Reeves thinks even that won’t be enough to “rise to the scale of the challenge” facing the country, with the opposition agitating for a windfall tax on oil and gas companies who have seen profits surge amid the global energy price hikes.
Others believe the chancellor should direct his efforts at better insulating Britain’s homes or expanding an existing discount scheme that sees the state foot some of the cost of energy for more vulnerable households. One option being discussed in the Treasury is to increase state benefits in line with a more recent measure of inflation — January’s stats show an annual rate of inflation currently hovering near five-percent — as opposed to the three percent used from last September.
Yet close observers of the Treasury don’t anticipate Sunak to suddenly reveal billions’ worth of assistance in a dramatic flourish. They say he is hamstrung by the knowledge that the state of the British economy could get much worse later this year — and so he needs to leave something in the tank, particularly with a general election due by 2024.
James Kirkup, director of the Social Market Foundation think tank said: “It’s October when things will get really grim … I think they’re considering trying to ride this one out with a view to seeing how it goes over the summer.” Currently the energy price cap is reviewed every six months meaning any further increases in the wholesale gas market would not hit consumers until October.
A Conservative Party adviser who predicted Sunak would announce new help nonetheless cautioned: “There’s a limit to what you can do. The energy price cap is already substantially below where the market price is … so people are still being protected, they just don’t realize they’re being protected.”
Meanwhile, spending settlements laid out by Sunak last fall already look outdated because of rising inflation. The government departments first in line for a boost would be health — as the NHS feels the impact of energy bills — and defense as the world recalibrates its thinking after the invasion of Ukraine.
Yet Sunak may resist anything extra for those ministries now in the hope the international picture changes and inflation comes down more quickly than expected.
In analysis published last week, the Institute for Fiscal Studies pointed out that in slightly more than two years, the current chancellor has announced tax rises of a similar scale to those seen under almost a decade of Gordon Brown’s Labour chancellorship of the 1990s and 2000s.
Presented with that analysis on Sunday, Sunak shot back: “Which one of those [chancellors] had to introduce furlough? Which one of those had borrowing higher than any level since World War II?”
For all their warm words about wanting to bring down taxes, Johnson and Sunak will struggle to make good on their crowd-pleasing pledges any time soon.
“Ukraine and what it means for defense spending and energy prices — it feels like another shock that will potentially prevent them from being the tax-cutting Conservatives that they wanted to be,” Zaranko said.
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