Can Rishi protect us from the great inflation tsunami?
WITH Chancellor Rishi Sunak’s autumn spending review and budget coming up next week, the shock rise in domestic energy bills must be balanced by holding back on consumer taxes – and it looks as though Rishi Sunak may be listening. A cut to the five per cent rate of VAT on energy would help hard-pressed householders, plus the reorganising of alcohol duty could see cheaper beer and wine.
This winter sees an unprecedented assault on British consumers as inflation is taking off, triggered by rocketing gas prices, staff shortages and disrupted international supply lines pushing up costs. Both the Government and the Bank of England seem to have been caught by surprise by the four per cent surge with the cost of living possibly set to go higher for longer than they thought.
We’ve seen a lot of catastrophic predictions recently, delivered by experts advising government, but this one appears to have missed most of them, with the Prime Minister initially dismissing it as a temporary correction following the end of Covid lockdowns.
BUT this week the governor of the Bank of England strongly hinted that interest rates will go up gradually from next month – not next year as he initially forecast, when he underestimated the importance of this inflationary shock to our economy. It makes one feel a little nervous if the head of our top financial institution is playing catch-up, considering all the information he has at his fingertips.
But the Bank of England has always been fast to cut interest rates but not so quick to put them up because of the effect on borrowing. We have been paying the price of that for a decade with sky-high house values out of reach for younger generations. Just this week house prices hit new highs, rising at their fastest across all sectors since 2007.
Fortunately, the Chancellor may be riding to our rescue. The superpower he possesses is his ability to switch on and off the taxes we pay for goods and utilities.
With gas prices surging fivefold this winter, the Exchequer hinted they might cut the five per cent rate of VAT we pay on energy bills in the upcoming budget. Conservative MPs are keen to see it as a benefit of
Brexit because EU rules forbid slashing the tax.
It would be very welcome but a temporary suspension of the green subsidies levied on domestic energy amounting to some 25 per cent of bills would also make a real difference to families facing the horrible prospect of keeping heaters off for longer as temperatures drop.
Green critics are askance at the message this cut in energy VAT will put out before next month’s climate change jamboree at COP26, but why should British consumers pay the price for virtue posturing on the international stage when big carbon emitters such as Russia, India and China seem unlikely to support our Prime Minister’s pledge on net-zero? We need to keep the home fires burning before saving the world.
Alcohol duty has always been a big source of revenue, but probably sensing that we’ll all need an extra tipple this winter to cope with rocketing bills, Rishi Sunak is also hinting at bringing forward an overhaul of drinks duty.
AS PART of his commendable determination to simplify UK taxes, he wants to reduce the 15 different bands of taxation on beer, cider, wine and spirits. For example, still wine of 5.5 to 15 per cent ABV is taxed at £2.98 per litre, while the duty on sparkling wine of similar strength is levied at £3.81 per litre. Rishi wants to scrap the premium on sparkling wine, reducing it by 83p a bottle. Cheers to that!
It’ll also give a huge lift to our thriving English sparkling wine industry, which has doubled sales over the last five years, enabling it to compete more fairly with continental champagne and prosecco.
Fairness is also behind a proposed online sales tax to level the playing field between the digital giants and the high street. Business rates need to be revised if not abolished to give shopkeepers a break. Unlikely to feature in next week’s budget, taxing internet monoliths may well be popular but it will also add to the cost to consumers who have shifted their shopping habits online.
Covid-19 has speeded up major changes to the way we buy and sell and government, only now, seems to be catching up to that new reality.
Rishi Sunak’s proposed cuts to consumer taxes will be thoroughly welcome next week, but it may be too little too late to save us all from the inflationary tsunami coming our way.
‘The proposed cuts to consumer taxes will be thoroughly welcome’