Cost of living response hindered by Johnson-Sunak rift, say ministers | Economic policy

Cabinet ministers are frustrated that a “mano a mano” standoff between Boris Johnson and Rishi Sunak is holding up measures to help people through the cost of living crisis.

Downing Street denied there was a rift between No 10 and No 11, with one source insisting that the prime minister and the chancellor were on the same page but simply taking time to find the right way to “target help at the most vulnerable”.

Nevertheless, cabinet sources told the Guardian that there was frustration at the probable delay of the package to help people hit by inflation and a squeeze on household budgets.

An economic rescue package – short of an emergency budget but containing promise of help with bills or tax cuts – was pencilled in for Wednesday but government sources said it was now unlikely to come this week.

One cabinet minister said the pair were locked in a “mano a mano” standoff – a phrase meaning hand-to-hand fighting – over a windfall tax on energy companies, about which rightwing advisers in No 10 are known to be sceptical, as well as how best to help struggling households.

They lamented the fact that clashes between No 10 and the Treasury had repeatedly resulted in messy political compromises – such as going ahead with April’s national insurance increase to avoid Sunak appearing to U-turn, before handing back some of the proceeds by raising the threshold.

There are concerns that a similar approach to the windfall tax issue could result in a complex measure, potentially involving more council tax or energy bill discounts, that would fall flat politically. “That is where this is heading,” the cabinet minister said.

A cabinet source said they wanted help for families to come “sooner rather than later” because the delays were harming the party’s standing with the electorate ahead of two crucial byelections in Tiverton and Wakefield.

Another cabinet minister said they would wait days or a week for cost of living measures “but not if it gets into months”, adding that it was sensible to make sure the measures were properly targeted at those who needed help.

The disagreement between No 10 and No 11 is centred on whether there will be a windfall tax to help raise money, as well as whether any help on bills will be targeted at the most vulnerable or will be more universal – such as a rebate for everyone, a VAT cut or bringing forward the 1p cut in income tax.

No 11 is understood to have been partially won round to the idea, if more investment in North Sea oil and gas is not forthcoming, but there is more resistance in No 10. Sunak is understood to be examining whether a levy on energy companies could be tapered to take account of investment levels.

Nevertheless, the reality is that a windfall tax will not raise enough money to fund any big tax cuts or bill rebates, which are likely to have to be funded by more borrowing.

Asked about measures to help with the cost of living, Johnson said on Monday that “no option is off the table” but added in relation to the idea of a windfall tax: “I’m not attracted, intrinsically, to new taxes.”

He told broadcasters: “As I have said throughout, we have got to do what we can, and we will, to look after people through the aftershocks of Covid, through the current pressures on energy prices that we are seeing post-Covid and with what’s going on in Russia and we are going to put our arms round people, just as we did during the pandemic.”

He said there was “more that we are going to do” but “you’ll just have to wait a little bit longer”.

With a meeting due on Tuesday morning, those who sit in cabinet are still heavily split over a windfall tax, ranging from Kit Malthouse, who is firmly against, to Treasury ministers such as Simon Clarke who suggest that the money to provide help with the cost of living will have to come from somewhere.

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David Canzini, the deputy chief of staff brought in to help Johnson assuage the right wing of his party, is said to be against a windfall tax, and sceptical about financial help for poorer households. He is described by one person who worked with him at Lynton Crosby’s political strategy firm as “very rightwing” and a “very partisan” Tory who would not instinctively be on the side of copying politically popular policies from Labour.

There is also irritation among some cabinet ministers that the £22bn already spent on helping consumers was poorly targeted – with £2.4bn going on a 5p fuel tax cut that was not fully passed on to motorists, for example.

Keir Starmer accused the government of needless delay and failing to understand the urgency of helping people who are struggling financially.

The Labour leader said: “What’s the government doing? It’s dithering, it’s delaying. Last week they voted against a windfall tax, now they’re saying they’re looking at windfall tax. They need to get a grip on this situation, because every day they dither and delay, more people are struggling, really struggling, with their bills.”

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