The Daily Telegraph

Means-testing the energy bailout is the one silver lining

The new Chancellor may just have spared us from rule by the markets – but not enough to save Truss

- MATTHEW LYNN

Corporatio­n tax is going up after all, income tax won’t be cut, the self-employed will carry on being squeezed, so will the high street, and even the duty on beer and wine is going up now after all. There was almost nothing in the mini-mini-budget, or the mini-reversal Budget, or whatever the heck we are calling these things now, that Conservati­ves could cheer. But the acting Prime Minister – sorry, Chancellor – Jeremy Hunt did at least have one reversal that just about everyone should be able to support. He finally put a cap on the ridiculous­ly expensive energy bailout.

In retrospect, by far the most catastroph­ic flaw in Kwasi Kwarteng’s doomed fiscal statement three weeks ago was not the cut to the top rate of tax or any of the other supply side measures he announced. It was the £150bn spent on a universal energy bailout that offered as much help to the well-off as those genuinely struggling to pay their bills. By putting that under “review’’, which is polite Treasury-speak for “we are getting rid of the whole terrible scheme before it does any more damage”, Hunt has now capped that vast cost. With that one move alone, he won’t have done enough to save the Government. It is too late for that now. But he might just have saved the UK’S public finances and rescued us from control by the bond markets.

Economic historians will debate what was the most disastrous mistake made by former chancellor Kwarteng and Prime Minister Liz Truss in their first few weeks in power. There is a regrettabl­y long list to choose from.

One point should surely be clear, however: their worst mistake was not the cut in the top rate of tax, ham-fisted though that appeared.

Nor was it the cut to the basic rate of income tax, nor the perfectly sensible help offered to the self-employed. It was the energy bailout.

There were two big problems with the scheme. First, it was completely uncosted. Estimates varied by tens of billions: some said £60bn, others went as high as £150bn. You could fund the NHS for six months on the difference between the two numbers.

No one really had any idea how much it might come to.

The reason for the vast difference was wholesale gas costs. The final bill all depends on how much gas ends up costing over the next few months.

Worst of all, though, was the fact the former chancellor hadn’t bothered to put any hard numbers on the scheme’s cost, nor had he figured out how to pay for it if it ran for the full two years as originally planned for.

Second, the support was poorly targeted. The subsidy was exactly the same whether you happened to live in a modest, well-insulated apartment, or in a drafty old mansion on an especially damp and windy hillside on one of the more remote Scottish islands. It didn’t make any difference whether you tried to control your energy consumptio­n or not, or whether you could afford the higher bills. The Treasury would pick up the tab anyway.

Sure, it might have been tricky to design a better targeted scheme in such a hurry but the particular­s of the final programme looked crazy nonetheles­s. Even Eat Out to Help Out looked well thought out by comparison – the half-price pizza deal at least only lasted for a month.

Add it all up, and while investors may not have liked the look of some of the tax cuts, it was clearly the energy package that triggered the full-scale meltdown in the bond market. Hunt has, perfectly sensibly, junked it. Instead of running for two years it will run for a much more manageable six months, which will just about get us through to next spring. After that, there will be what he politely termed a “review” guided by two main principles. It will be means-tested, so that if you have enough money to afford a £5,000 or £6,000 a year energy bill you will just have to pay it yourself. Help will be concentrat­ed on people who can’t afford to stay warm. On top of that, there will be incentives to maximise energy efficientl­y, especially on the support offered to businesses.

Plenty of other countries have forced shops and offices to turn out the lights at night, and there is no reason why British ones should not do the same. In Germany, gas consumptio­n has already dropped by 20pc to 30pc as the government encourages people to turn down the thermostat­s and take showers instead of baths. How much will that reduce the cost of the bailout by? It could easily halve the total bill.

Hunt’s plan to reform the energy support package is surely the right decision. The UK was facing rule by the bond markets. Every spending decision, every tax tweak, and every minor ministeria­l reshuffle would have been subject to scrutiny by global investors ready to dump gilts at the slightest sign of any departure from the ruling orthodoxy. If anyone wants to know what that is like just ask the Greeks.

It took a decade after its financial crisis for the government to regain any form of flexibilit­y, and that was after a GDP contractio­n of more than 30pc – worse even than the Great Depression in the United States. It is a humiliatin­g place for a major developed country to find itself in.

With something akin to a cap on the cost of the energy bailout, Hunt may have done just about enough to avoid Britain going the way of Greece. In reality, though, it won’t be enough to save this Government. It is too late for that now, and after the shambles of the past three weeks hardly anyone still thinks this administra­tion deserves to stagger on any longer.

But Hunt’s changes might just save us from rule by the markets – and that at least is something to retrieve from the wreckage.

‘Kwarteng hadn’t put any hard numbers on the scheme’s cost, nor how to pay for it’

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