Conservative MPs break out with the government to demand action on the rising cost of living as shocks like the war in Ukraine rock the world economy.
They appealed to Chancellor Rishi Sunak ahead of his March 23 spring economic statement.
The BBC understands Mr Sunak is considering options to ease budgetary pressures ahead of a surge in energy bills and a tax hike from April.
As MEPs urge him to act, we assess some of their proposals and their likelihood of being adopted.
A record rise in global gas prices, driven by high demand and tight supplies, has sent energy costs skyrocketing.
One consequence of this is a new UK price cap that will increase energy bills by around £700 a year from April 1st.
Energy regulator Ofgem estimates that around 8% of these bills go to environmental taxes that fund home insulation and renewable energy.
A campaign to scrap these so-called green levies is being led by Craig Mackinlay, chairman of the Net Zero Scrutiny Group, who is urging the government to reconsider its climate policies.
- Can Britain afford its net zero policy?
Keeping green taxes, Mackinlay told the BBC, would be “politically very bad” because voters “will think the government isn’t really on my side”.
Government insiders have suggested this was “not a go-er”.
The money raised from environmental taxes is tied up in contracts to curb carbon emissions in partnership with the private sector. A government source argued that the taxpayer would have to bear the cost of these contracts if they were cancelled.
While skeptics have pointed to Germany, whose coalition of Greens, Social Democrats and Liberals has moved to scrap a renewable energy levy, Government sources stress they are still committed to the UK’s net-zero target.
Fuel prices have soared to record highs since the invasion of Ukraine, leaving motorists stunned at the ever-increasing prices at the pumps.
On March 1, the average price of a liter of unleaded petrol was 151.67p – compared to 123.58p on that day a year earlier, according to car services company RAC.
This dramatic increase “is not about to slip, it’s already here,” warned Tory MP and fuel campaigner Robert Halfon.
He said rising fuel costs have consequences for businesses, public services and the rising prices of everyday items known as inflation.
Mr Halfon has urged the Chancellor:
- Cut the fuel tax, which currently stands at 57.95p a liter and has been frozen by Conservative Chancellors for years
- Introduce a Pumpwatch monitor to “protect motorists from the rapacity of big oil companies that drive up the price” when global demand is high
Mumbling about rising gas station prices is getting louder among MPs – and ministers are noticing it.
A government source claimed they were now being charged more than energy bills. The transport industry has also campaigned for a reduction in fuel taxes.
The Treasury’s official line is that all taxes will be reviewed and the existing 2022-23 fuel tax freeze will save consumers “nearly £8bn over the next five years”.
However, some government insiders admit the case against a cut is less clear and they are keeping a close eye on how prices are developing throughout the year.
Tax policy is not updated in the chancellor’s spring statement, but the door to further interventions in fuel prices is not necessarily completely closed.
A £20 top-up was withdrawn for nearly six million people who took advantage of Universal Credit last October to help families through the pandemic.
The cut was an emotional issue that, according to a think tank, would decide whether or not another 500,000 people fall into poverty.
- EXPLAINED:Why are energy costs so high?
- PRICES:Gasoline costs hit a new record
- WARNING:Britain is facing its worst income crunch in decades
- APPEAL:Campaigner says families urgently need help
Before the top-up was scrapped, some Tory MPs joined Labor in calling for the extra £20 to be made permanent. Among them was Peter Aldous, who told the BBC in August last year the cut would “cause a lot of problems for a lot of people”.
Recently, Conservative peer Lord Forsyth said the upheaval should be restored “in the name of humanity”.
The government’s response to these demands was to lower the overall credit renewal rate, which meant beneficiaries could keep more of what they earned.
This placated some vocal critics of the Tory MP at the time, some of whom felt it struck a balance between incentives to work and more generous benefits.
Amid renewed calls to pull that lever further, government insiders have stressed that they are aware of the financial squeezes facing middle-income people as well as the poorest households.
That was the thinking behind the recently announced energy bill, which will be received by around 80% of households.
Mr Sunak has attempted to position himself as a “tax-cutting” Conservative in the mold of his political idol, former Prime Minister Margaret Thatcher.
But his Thatcherite credentials have come under scrutiny after a £12billion increase from the National Insurance (NI).
In April, the policy provides for NI contributions to increase by 1.25% to fund welfare and health services in England.
Tory critics, who hold seats in core Labor areas in northern England, have said the increase will have a disproportionate impact on low earners.
The first £12,570 of their income should be exempted from NI, Tory MPs’ Northern Research Group – led by Jake Berry – has suggested.
Several veteran Conservative MPs have been more vocal in opposing the tax.
One, former Conservative leader Sir Iain Duncan Smith, said the hike would slow the economy, while another, David Davis, told the BBC the tax was “a drag on work”.
While nothing can ever be ruled out in politics, we can be pretty sure it won’t happen. Both the Prime Minister and Chancellor have decided they will not reverse this policy and government sources say it is “off the table”.
As the Bank of England warned of the biggest drop in living standards in decades, the Chancellor announced a plan that he said would “take the sting out” of higher bills.
In February, Sunak promised a £150 tax refund for properties in bands A to D and a £200 cut in energy bills in October, to be paid back over five years.
Tory MP Stephen McPartland told the BBC the plans are “obviously a step forward as there is some support but we need to find a way of relieving families of this huge cost”.
One solution would be to leave the energy price cap at the current level. This could be done by offering £25 billion worth of loans to energy companies.
These loans would “even out” the volatility of energy prices, allowing them to spread bill increases over time.
The BBC understands Mr McPartland raised the idea with Cabinet ministers.
No. 10 called on the economy minister to come up with a series of proposals to cut energy bills.
This included changes to the chancellor’s discount system, such as doubling the loan, delaying repayments or making it more generous for poorer households.
But Treasury Department sources have dismissed calls to tweak the existing scheme. While some ministers have been more receptive to Mr McPartland’s idea of a ‘credit facility’, government sources have backed away from it.
Among other things, a one-off tax on profits from oil and gas companies was discussed on the benches of the opposition.
Dubbed the ‘windfall tax’, the measure has been backed in various forms by Labour, the Liberal Democrats and some Tory MPs.
The Labor version proposes a 10 percentage point increase in corporate tax for oil and gas producers in the North Sea from April.
According to Labour, this would raise £1.2bn which could be used to help households struggling as energy bills rose 54% from April.
The work would do this by:
- Abolition of VAT on domestic fuel bills (currently 5%)
- Warm house rebate increased from £140 to £400
- Extend this discount to nine million families, up from the 2.2 million currently receiving it
Some Tories support a cut in VAT on energy bills and more generous warm house rebates.
Lib Dems, meanwhile, have backed the latter and have also called for an emergency 2.5% VAT cut which they say would “put an average of £600 back into the pockets of British families”.
- Cut sales tax to lower cost of living, Liberal Democrats tell Sunak
The Treasury is not keen on reducing VAT on energy bills as it is untargeted – believing it would only help people up to £7 if the energy price gap widens in April.
A government source said it would be “politically” difficult to reverse as it has already been publicly ruled out.
Its proponents argue that VAT collected from rising fuel or energy prices could help bring them down, but a Treasury Department spokesman said it had “no ‘VAT pandemic'”.
Ministers are also not keen on an unexpected tax on energy companies, fearing it would “deter” investment in power generation in the North Sea while the government seeks to source more energy domestically.
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