Tories fear voter backlash from rising cost of living

UK Budget updates

Rishi Sunak, UK chancellor, is under growing Tory pressure to soften the impact of rising living costs this winter, with one senior MP drawing parallels with the pain suffered by households in the 1970s and 1980s.

Sunak is feeling political heat on an almost daily basis, with families facing sharp rises in energy bills, higher food prices and — according to the Bank of England on Thursday — inflation heading above 4 per cent.

The warning by BP on Thursday that it had “temporarily” closed some of its petrol stations because of a shortage of tanker drivers has heightened concerns among Tory MPs that the country is heading into a dark few months.

For now Sunak is holding the line against calls for more financial support for families in next month’s Budget — arguing that rising wages and a buoyant jobs market are cushioning the impact of rising prices.

He hopes that price surges and supply disruption will prove to be temporary, but Damian Green, former cabinet minister, said: “We are seeing quite a significant sea change in the economic challenges facing this country.

“The cost of living was a huge concern back in the ‘70s and ‘80s,” he said. “But now the issue is back in the forefront.” Green said significantly higher prices were coming down the track.

Ofgem, the energy regulator, is set to increase its price cap on bills by 12 per cent on October 1 and economists expect a further increase of 15-17.5 per cent next April. Some Tory MPs fear prime minister Boris Johnson is facing his own “winter of discontent”.

While many of the global supply issues are beyond Sunak’s control, the opposition Labour party believes the chancellor’s decision to end a £20-a-week “temporary” uplift to the universal credit benefit will lead some families to blame him as household budgets tighten.

Therese Coffey, work and pensions secretary, urged Sunak to soften the impact of next month’s universal credit cuts by adjusting taper rates to allow workers to keep more of any additional income, according to government officials.

Sunak has so far resisted that argument — made by Coffey in her pre-Budget public spending bid — as well as pressure from Tory MPs to retain the universal credit uplift.

Coffey has proposed cutting the taper — the rate at which universal credit is withdrawn for every extra pound earned — from 63p to 60p, in a leaked proposal first reported by the Daily Mirror. The move would cost up to £1bn.

No final decisions have been taken but Sunak will be forced to confront the issue of rising costs in his October 27 Budget.

Torsten Bell, director of the Resolution Foundation think-tank, said: “The danger for the government is that because of the universal credit cuts, they could “own” a cost of living crisis.”

Conservative MPs have been receiving invitations for talks with Sunak to discuss the tight fiscal situation ahead of the Budget, with bacon sandwiches served in Number 11 for breakfast and “warm white wine” in the chancellor’s House of Commons office in the evening.

Many MPs leave the meetings chastened by Sunak’s warning that any increase in spending — such as another £6bn-a-year extension to the UC uplift — would have to be covered by a rise of 1p on the basic rate of income tax and a 5p rise in fuel duty.

After Sunak’s decision this month to increase national insurance rates to put an extra £12bn a year into health and social care — the rises take effect next April — many Tory MPs refuse to countenance even higher taxes.

Sunak has also frozen personal income tax allowances from next April, meaning that people will see a further squeeze on their household budgets just as they emerge from what could be a tough winter.

“For the last few years there have been no limits to spending, but that’s finished now,” said one Tory MP briefed by Sunak. He said MPs were worried about rising living costs but were “more nervous about tax rises”.

Another MP said that, for now, the number of emails from constituents concerned about rising living costs was running at only 5 per cent of the level of people who had fulminated about the lockdown-busting trip to Barnard Castle by Johnson’s former chief aide Dominic Cummings — a benchmark used by MPs to measure public anger.

Sunak tells MPs that with underlying wage growth of 4-5 per cent and a number of government-backed schemes to help people back into work — and to retrain — there is support through tough times.

But Steve Baker, another former minister, said: “I’ve long believed that this winter we will see inflation coming in and staying in. Now we’ve got an energy crisis on top of it.” Like Green, he opposed the universal credit cut.

“I’m sorry to say that rather abstract ideas about levelling up won’t mean much if the public see their bills rising, interest rates rising and the increasing cost of meeting net zero coming in,” he said.

Conservative strategists are nervously monitoring public opinion as prices start to rise; Labour leader Sir Keir Starmer, who addresses his party conference next week, is expected to focus heavily on the cost of living crisis.

Meanwhile UK consumer confidence fell back to minus 13 in September, down 5 points from August and the lowest level since April, according to the research company GfK.

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