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Sunak fails to walk and chew gum
(27/05/22)

ANDREW PENDLETON HEADSHOT

Andrew Pendleton, Deputy CEO and Director of Strategy and Advocacy

In the US, the inability to think about two, straightforward things at once is usually derided as a failure to ‘walk and chew gum’.  

 

What’s striking about the new announcements from Rishi Sunak to deal with the Cost of Living crisis – and the opposition’s response – is that there’s plenty of important gum chewing going on, but concurrent forward motion on the Climate Crisis is what’s lacking.  

 

There have been pages and pages of analysis and coverage devoted to the £15 billion of help the Chancellor has announced for UK households. Let’s be clear, as gum goes, there’s a lot of good stuff to chew on here, with the measures very clearly helping the poorest households the most. This demands an unequivocal welcome.  

 

In macroeconomics, there’s always a temptation for experts and policymakers to be over-complicated in the way they approach problems. Sometimes, just targeting a load of cash in the right place is what’s needed, even if there might be downsides.  

 

On this occasion, to satisfy the gum-chewing element of the current crisis facing even households with relatively good incomes, what Sunak needed to do was ensure most people could pay their bills and eat this year. He has probably done that.  

 

But he’s not moved forward on climate change, that other great crisis of our times, and, if anything, has stepped backwards. If the cost of living and climate crises were completely unrelated then that wouldn’t matter. But they are rooted in the same, poisoned soil. 

 

One of the main, underlying reasons why inflation is expected to reach 10% in the UK this year is due to the rapidly rising oil and gas prices, which is in turn caused by post-pandemic supply problems and Putin’s brutal invasion of Ukraine. The injection of cash to households will largely be paid for by additional government borrowing, but the government is also raising what it estimates will be £5 billion by increasing the rate of tax on the profits of oil and gas companies.  

 

Though Sunak has refused to use the phrase, this is a windfall tax. Surely a step in the right direction? 

 

Not really. Because as well as applying the temporary windfall tax to firms like Shell and BP, who have posted record profits in recent weeks, the Treasury has also offered massive – 90p in the pound – tax breaks if the same companies invest their profits in new oil and gas projects. The tax breaks for investment have been promised up to 2025 and are estimated to cost us (the taxpayer) £5.7 billion; about the same as the entire UK adult education budget. 

 

If the windfall tax is ditched next year, when inflation may level off, then over the whole period of the tax break for investment, we will pay oil and gas firms more than we will tax them.  

 

It doesn’t stop there, though. While giving cash to households to cover the rising costs is definitely the immediate priority, as long as the UK’s housing stock remains horrifically poorly insulated and leaky, and our heating reliant on burning gas, where will most of that cash end up?  

 

You’ve guessed it – it’s headed back into the coffers of the companies the government is windfall taxing. It’s a massive, climate change-fuelling money-go-round, which solves almost nothing about the insane structure of the UK household energy market or our high domestic-sector carbon emissions.  

 

It’s probably a good job Sunak has improved his gum-chewing. Even his own, fiscal policy-shy backbenchers were calling for more help for households and, had he not, the fallout would have put even party-gate into the political shadows as the truly shocking energy bill increases expected in the Autumn unravelled.  

 

But the government’s failure to think about the other great crisis that confronts us and climate-proof its response to the costs of living crisis is an abject failure. To be even-handed, Labour have hardly embedded climate into their proposals either.  

 

Environment, anti-poverty and youth campaigners were shaping to launch a massive campaign for a windfall tax this Autumn. Sunak has headed this off, but, by failing to walk and chew gum, has marked out the territory for the next campaign. Insulate homes; replace boilers with heat pumps; invest in renewables; block off and don’t incentivise new oil and gas projects; put more money into the welfare system and no one-off giveaways.  

 

Unless the government’s next move is to invest massively in helping homes and business get off fossil fuels – and to invest in the UK’s ragged social safety net rather than just offer one-off handouts – then they will just need to chew more and more gum, while largely standing still.  

 

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