PM ‘not in a good place’ as windfall tax decision proves far from a breeze

It was back in 2014, in an interview with this newspaper as Mayor of London, when Boris Johnson gave a rare insight into his fundamental political ideology.

“I think I’m basically a liberal Conservative,” he declared with uncharacteristic directness. “I believe in low tax, spirit of free enterprise, and in making sure that we as politicians create the framework for business to produce the dosh that we’re going to need to pay for the poorest.”

“Produce the dosh” may be open to interpretation, but it is unlikely the man who once declared himself to be “the most passionately pro-business Conservative politician you would hope to meet” was thinking of a windfall tax.

Not least when it is a key Labour policy that Tory MPS voted down, only last week.

Yet the Prime Minister now stands accused of blowing in the wind over the levy on the oil and gas industry amid suggestions he is considering a “Windfall tax-lite”, with companies penalised more heavily if they have not invested more in UK energy production. Excess profits, any profits above a certain threshold determined by the Government, could be targeted.

It comes after Rishi Sunak was reported to be considering measures once adopted by Margaret Thatcher, Tony Blair and George Osborne in an effort to ease the cost of living crisis.

A Treasury spokesman said: “The Chancellor has been clear that as the situation evolves, our response will evolve – and we stand ready to do more.” More than seven in 10 Tory voters back a windfall tax, according to polling by Yougov – higher than the national figure of 70 per cent.

But veteran Conservative MPS and ministers remain far from convinced.

The cabinet is already split over the issue – with Sajid Javid, the Health Secretary, Anne-marie Trevelyan, the International Trade Secretary, and Brandon Lewis, the Northern Ireland Secretary, all having publicly opposed the idea over the weekend.

Jacob Rees-mogg, the Brexit Opportunities minister, is also against while some of Mr Johnson’s closest advisers, David Canzini, Guto Harri, Steve Barclay and Andrew Griffith, all regard the idea as “unconservative”.

Sunak, meanwhile, appears to have the support of Michael Gove, described as “increasingly interventionist” by his colleagues.

Jeremy Hunt, now seen as Mr Johnson’s main leadership rival, has also said he found it “very difficult to justify” BP’S underlying profit more than doubling to almost £5billion and Shell’s profits almost tripling to £7.3billion in the past year.

So which way is Mr Johnson likely to blow on this? “Well, it’s a case of who’s puffing hardest,” said one well-placed source. “He’s not in a good place because he’s worried about upsetting various elements of the party at this stage and having a leadership election.”

The Daily Telegraph understands that a group of Thatcherite “grey hairs”, including John Redwood, the Iron Lady’s former economic adviser, have tried to dissuade the Prime Minister from adopting a policy they fear will harm investment and lead to even higher energy prices, damage pension funds and actually only provide what one described as “a short term gain for a lot of long term pain.”

It is thought any windfall tax will raise just £5 billion to £6 billion. The source added: “The problem with public opinion is they’ve been persuaded a windfall tax will automatically lead to lower costs for them – it won’t.

“The Treasury is looking for a wheeze to get everybody off their back. Rishi is looking to be popular because he’s had a terrible battering that has not been helped by appearing in the Rich List.

“But there are plenty of Tories telling Boris that once you start down the road of targeting capitalism, what you end up with is less investment.

“The problem with Downing Street is that they are outgunned by the Treasury every time because they’ve got no economic adviser in there.

“That’s how we ended up with the Health and Social Care Levy.”

Mr Johnson is believed to have been shown figures that suggest the Treasury may have almost £300 billion more fiscal headroom in the form of unanticipated deficit reduction than it forecast two years ago.

Sir Iain Duncan Smith, a former party leader, is among those pushing for lower – not higher – taxes, pointing out that the Government has “had two years of much better growth in receipts than they expected”.

Those who worked with Mrs Thatcher have also sought to remind Mr Johnson that the levy she imposed on banks in 1981 was under very different circumstances – and almost cost her her job.

Yesterday, Jesse Norman, the Treasury minister, sought to justify the move by saying: “I have no doubt Margaret Thatcher in her pragmatic prime would have levied a limited and temporary tax of this kind.”

But as one backbencher with a longer memory pointed out: “What we’re facing today is not like it was in the early 1980s, when we were alone in having a domestic inflation problem.

“Other countries were in a much more stable position but we had strikes, huge pay demands and very low productivity.

“Today it’s completely different – 80 per cent of our inflation comes from global problems – demand outstripping supply and the war on Ukraine. If you look back on it, Thatcher realised she’d over-squeezed the economy.

“Alan Walters came in as her chief economic adviser and told her she’d gone too far. She was about to get the chop when she decided to grow the economy instead.

“We will lose the next election if we end up in a recession.”

That view is certainly supported by business. A report by the Centre for Policy Studies, described a windfall tax as a “terrible idea” in March, arguing: “Taxing the companies that need to invest more in producing the gas we need would be self-defeating.”

So it once again seems that keeping the party onside with populist policies is proving anything but a breeze for the Prime Minister.