Has the penny finally dropped for the government on the cost of living crisis?

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Eric Garcia

Washington Bureau Chief

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While Labour inspected its own navel after losing the 2010 general election and held a leadership contest, David Cameron and George Osborne ruthlessly pinned the blame for the UK’s deficit on the outgoing Labour government to justify their own spending cuts.

The Tories persuaded many voters that a decade of austerity was an economic choice, even though it was a political one. They knew the fundamental cause was the global financial crisis but seized their opportunity to accuse Labour of overspending. Most people bought it, and the damage to Labour is still evident today.

Although under Keir Starmer and Rachel Reeves, the shadow chancellor, Labour has drawn level with the Tories on the economy in the opinion polls, one reason why the party is not further ahead in the polls is voters’ lingering doubts about its economic competence.

Now, however, some Tory ministers and MPs fear privately that the boot will be on the right foot and they are about to suffer the same unfair fate as Labour in 2010. The read-out after yesterday’s cabinet session on the cost of living crisis blamed global issues outside the government’s control, such as soaring inflation and energy prices.

Ministers agreed that “these global pressures were the single biggest issue of importance to the public and outlined work taking place in their departments to help the public and businesses”. Yet, as in 2010, voters are more likely to blame the government of the day rather than accept that the causes are global.

The penny has finally dropped in Downing Street about how serious the living standards problem is. Until recently, advisers were told that exploiting the opportunities of Brexit should be their number one priority; now, belatedly, it is the cost of living.

Boris Johnson is thrashing around for ideas, desperate to show the public and jittery Tory MPs his government is “doing something”. Hence the cabinet session and his demand for ideas from every minister on what their department can do. Johnson will chair a domestic and economic strategy committee in the coming weeks to finalise proposals.

But allowing nursery staff to look after more children, motorists to get MOT tests for their vehicles every two years instead of one and reducing tariffs on food imports would bring little immediate help to millions of struggling families. The government is running to catch up after Rishi Sunak missed a golden opportunity to act in his spring statement last month. Meaningful help may be too late if it is delayed until the autumn; the political as well as economic damage will be done.

One reason why the cabinet can agree on small ideas like cutting red tape (yawn) rather than big ideas is the Tories’ unresolved split: are they Thatcherite fiscal conservatives like Sunak or big spending interventionists like Johnson? That’s why cabinet ministers clashed yesterday over tax cuts (again) when Kit Malthouse, the policing minister, and Jacob Rees-Mogg argued that reducing taxes would be the best way to ease the pressures on families.

But the moment to do that was missed when Sunak persuaded Johnson to go ahead with this month’s rise in national insurance contributions. Rees-Mogg raised the cost of net zero, despite new research from the Onward think tank suggesting that ditching the commitment could cost the Tories 1.3 million votes.

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There were plenty of old ideas at a meeting designed to produce new ones. Some ministers called for a boost to house building, but Johnson’s desire not to upset his fractious backbenchers has already seen a proposed relaxation of planning rules scrapped. His working majority of 75 is now meaningless. There was a time after the 2019 election when he was strong enough to push through big reforms that would have made a difference in the current crisis. But, amid Partygate, the weakened prime minister’s real priority number one is now day-to-day personal survival rather than long-term change for the country.

Crucially, Sunak is insisting that the new cost of living measures must not involve any extra money. Johnson grudgingly agrees – in public, at least. Inevitably, this will severely limit the impact of the proposals. But Sunak, like Johnson, has seen his authority weakened; one sign of it is the repeated pressure on him to cut taxes by ministers who fancy themselves as potential chancellors.

The government’s other problem is that public and political expectations are sky high because Sunak hiked borrowing by £400bn in the pandemic, including £70bn on his furlough scheme. If he could do it in a public health emergency, why not in an economic crisis that is fast becoming a political one for the Tories?

If they don’t act quickly, the Tories will face the same fate as Labour in 2010 and lose their credibility on the economy. As Labour learnt, blaming domestic problems on a global crisis, however true that might be, does not cut much ice with the public.