Comrade Rishi’s Cost of Living Bailout: Think Tanks React

On cue, Westminster’s wonks have whirred into action to give their two pennies’ worth on Rishi’s big cost of living cash splurge. As usual, Guido brings you the lowdown on what Westminster’s think tanks – and a few others this time – have to say about today’s announcements:

The Adam Smith Institute is broadly supportive of the measures, although they’re less enamoured by the government’s plan to pay for them. Director of Operations Morgan Schondelmeier said:

A one off cash payment direct to the most vulnerable households is the clearest way to provide immediate support with the least distortionary effects. Uprating benefits in line with CPI is also a sensible measure to ensure the least well off don’t get left behind. Finally, the Chancellor is right to scrap the repayments on the energy bills rebate – a poorly designed scheme from the start… A conclusion the Chancellor never should have reached was that a windfall tax is a good idea. Spending months arguing against it both practically and ideologically and then caving to pressure from the left leaves much to be desired for a ‘fiscally conservative’ Chancellor.”

The Institute of Economic Affairs is much more critical, lambasting Rishi for u-turning while still refusing to cut taxes. Director General Mark Littlewood said:

“The worst way to make policy is to oppose something half-heartedly in principle, then procrastinate and finally change position as a result of political expediency. It is painfully obvious that in the battle of ideas, the government enters the arena wholly unarmed. Rachel Reeves, the Shadow Chancellor, is right to say that this represents a policy victory for Labour. The default setting of the Conservatives now is to respond to virtually any problem by increasing taxes and spending even more money. The appetite and ability of the government to lower taxation or reduce the regulatory burden on businesses is approximately zero.”

The TaxPayers’ Alliance isn’t impressed either, claiming the move is “little more than the government taking with one hand and giving with the other“. Chief Executive John O’Connell said:

Taxes are the single biggest bill families face and these huge handouts will see politicians hoovering up the incomes of struggling taxpayers, creating a cost of government crisis. If the chancellor wants to boost growth and help households, he can deliver both right now by bringing forward the planned income tax cut and slashing costly levies on energy bills.”

The Centre for Policy Studies welcomes the support for the vulnerable, although like the Adam Smith Institute, they’re sceptical of paying for it via a windfall tax. Head of Welfare and Opportunity James Heywood said:

The measures strike a good balance between limited universal support, in recognition of the pressures all households are facing, and targeted support for those on the lowest incomes. They also reflect the need to get cash to households quickly and minimise the numbers of people falling through the cracks, given the limits on government’s ability to administer such schemes.”

Head of Tax Tom Clougherty added:

We remain highly sceptical of the fiscal and economic case for a windfall tax. We are concerned about the impact it could have on long-term investment in the UK energy sector… That said, the chosen version of the levy was not as bad as it could have been, due to the inclusion of generous investment allowances as a compensatory measure.”

Resolution Foundation Chief Torsten Bell is obviously hugely supportive of policies that involve printing money. He writes:

“The Chancellor has announced a big and very welcome package of support for households facing fast rising energy bills. It almost doubles the level of energy support to over £30 billion, and fills the huge gap in previous announcements with large targeted support for those hit hardest. The decision to provide one-off payments this year to poorer households, pensioners and those with a disability is a good attempt to target those with higher energy bills – although the relative lack of support for larger families stands out.”

The Institute for Fiscal Studies also gives the announcement the thumbs up, albeit with the caveat that the policy is “less generous to poor families with children than to those without.” Director Paul Johnson said:

“Rishi Sunak has announced a genuinely big package of support for households. On average the poorest households will now be approximately compensated for the rising cost of living this year. The flat rate nature of payments to benefit recipients does mean, though, that the package is less generous to poor families with children than to those without. Even so, put these benefit increases alongside the tax rises just implemented, and Mr Sunak is engaging in some serious redistribution from rich to poor – albeit against a backdrop of rising inequality.”

Money saving expert Martin Lewis, who’d been calling for a big intervention for weeks, is also happy with the plans. He’s sitting down with Rishi at 5.30 today for a live Q&A on the plans. In the meantime, he’s put out a reaction video on Twitter:

Returning to parliament, so far only John Redwood and Richard Drax have come forward to question Rishi’s thinking. Redwood welcomed the move to protect vulnerable consumers, though he gave Rishi a stern warning about uncontrolled inflation:

Rishi responded by insisting he has “long been concerned about the risk of rising inflation”. Richard Drax wasn’t buying it, warning Rishi that

“throwing red meat to socialists by raising taxes on businesses and telling them where to invest their money is not the Conservative way of encouraging those who create our prosperity and jobs to do just that.”

The Tories can’t, and shouldn’t be trying to, outspend Labour…

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