Tensions over cost of living surface, as Kwarteng sets face against ‘arbitrary’ windfall tax on energy firms


Cabinet divisions over the cost-of-living crisis have burst into the open, as business secretary Kwasi Kwarteng set his face firmly against an “arbitrary” windfall tax on energy firms just days after Rishi Sunak indicated he was ready to consider the move.

Mr Kwarteng’s comments came as inflation and the cost of living emerged as the key issue for crunch local elections across Britain on Thursday, with opposition parties arguing that a windfall tax could help ease the burden of soaring gas and electricity bills on families.

Liberal Democrats today issued a demand for an emergency tax cut in the 10 May Queen’s Speech, cutting £600 a year from the tax burden on the average family by cutting the main rate of VAT from 20 to 17.5 per cent for the next 12 months.

Meanwhile, Asda boss Stuart Rose said that the government and Bank of England had been “slow” in recognising the threat from inflation and taking action to counter it.

Lord Rose said that supermarkets were facing a “new level of costs” because of factors like the war in Ukraine – which produces a large share of the world’s vegetable oil and feed for chickens – and the near-shutdown of areas of China impacted by Covid, and said there was more the government could do to “cut out every extra cost” by streamlining regulations.

It was clear that increased prices “won’t go down” over the coming years, Lord Rose told BBC1’s Sunday Morning, adding: ““What we are now going to have to think about is, is that going to have a long-term effect on inflation – because then will we have a wage spiral – or won’t we?

“The converse side of that is we could end up, if we have no growth in the business, having stagflation. They are both evil and the government has got a very difficult and tricky road to navigate.”

Mr Kwarteng dismissed calls for an emergency budget to implement a new package of immediate help for struggling families – though he stressed that the decision was for Mr Sunak to take.

The chancellor last week signalled support for a windfall tax on energy firms if they failed to use their profits – hugely inflated by the current high price of oil and gas – for the benefit of the UK.

“If companies aren’t going to make investments in our energy security, of course that’s something I’d look at,” he told the Mumsnet website.

But Mr Kwarteng – who has written to the companies urging them to reinvest profits in the UK economy – today set his face firmly against a tax.

“I’ve never been a supporter of windfall taxes,” he told Sky News’ Sophy Ridge on Sunday. “I’ve been very clear about that publicly. I think they discourage investment.”

And he later told the Sunday Morning programme: “We want to encourage investment in the North Sea, we want to have domestic sources of supply, and if you are asking a company to invest in North Sea gas, which we need for new technologies as well, it doesn’t make much sense to me to then hit them with a windfall tax which is arbitrary and unexpected.

“I don’t think that is the right way.”

However he acknowledged that he could not rule out the chancellor opting for a windfall tax as he comes under growing pressure to help families increasingly struggling to cope with power bills.

“He has to have a much wider view of the entire economy,” said Mr Kwarteng. “Every chancellor that I can remember has always said every option is on the table. That’s a reasonable thing for a chancellor to say.

“He and I talk about these things all the time, he’s always been a pro-investment conservative. I’m not ruling out what the chancellor is or isn’t going to do in an October budget – that isn’t my job. As he said, he’s responsible for the budget and he’s going to look at all the options.”

Labour leader Keir Starmer said that a one-off tax on oil and gas “super profits” could deliver an immediate £600 reduction in average annual energy bills.

“We are not talking about taxing the profits they expected to make,” Sir Keir told Sky News. “This is the profits they didn’t expect to make.

“I tell you this – £600 help with energy bills for those that need it will be desperately needed and welcomed across the country.”

Sir Keir said the cost of living has been the “number one issue” on the doorstep while campaigning for the local elections, adding that the Conservatives have said “absolutely nothing” about it.

Lib Dem leader Sir Ed Davey said that the spike in prices meant the Treasury was forecast to take in £39bn more in VAT over the coming four years than had been predicted last year.

He urged Mr Sunak to put £600 into ordinary families’ pockets by cutting the rate of the purchase tax in “a cost-of-living Queen’s Speech”.

“Rishi Sunak is raking in billions in extra tax because of soaring prices,” said the Lib Dem leader. “He could cut people’s taxes at the stroke of a pen, so there is no excuse for him not to act.

“People are facing a cost-of-living emergency, and they need an emergency tax cut now.”


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