No fuel VAT cut, Treasury chief secretary says

Cutting taxes would be a huge gamble, the chief secretary to the Treasury said yesterday as he poured cold water on the idea of reducing VAT on fuel.

Simon Clarke said the public finances were “incredibly vulnerable” after Covid-19 with debt interest payments already starting to rise.

Boris Johnson promised yesterday that the government was “looking at a package of things to abate energy costs”, but sources stressed this would be far smaller than the £12 billion cost of scrapping the national insurance rise in April.

The prime minister had been “wobbling” on the increase after backbenchers who hold his fate in their hands told him it ought to be scrapped to help offset the cost of living as energy bills rise.

After Johnson and Rishi Sunak, the chancellor, were forced to write a joint article confirming the rise, Conservative MPs reacted angrily with Sir John Redwood, the former cabinet minister, calling it a “dreadful decision”.

Clarke insisted, however, that money was needed for the NHS backlog: “You cannot do that by whacking up more debt. That is not the responsible route to fund our health service.”

While borrowing is lower than forecast last year, Clarke told Today on BBC Radio 4 this did not mean the government could relax. “What I would say to that is that the cost of borrowing is rising,” he said. “We are incredibly vulnerable with our record debt after the pandemic . . . so a 1 per cent rise in the cost of borrowing would cost the Exchequer £23 billion — that is a huge gamble we would be taking with economic security.”

He also hardened Treasury opposition against a cut of VAT on fuel, which some MPs have called for as a Brexit dividend. “If you go with a blanket cut in VAT, then the risk is that the benefit accrues disproportionately to the wealthiest, because they tend to have larger homes, larger energy bills, and will therefore reap the disproportionate benefit from such an intervention. We would rather target our support.”

Sunak is considering measures including grants to the poorest households to deal with rising fuel bills and Clarke said that “we do need to make sure that when we do act — if we do act — that we get it right, because this is billions of taxpayers’ money that needs to go where it is most needed.”

Johnson, speaking to broadcasters during a visit to Tilbury in Essex, said: “We all understand the pressures the cost-of-living crunch is putting on people . . . I know the chancellor is looking at a package of things to abate energy costs.” He said people would “be hearing more from the chancellor in due course”, but argued: “The best way to help people with the cost of living is to have high-wage, high-skilled jobs and that is one of the benefits we are seeing from Brexit.”

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No fuel VAT cut, Treasury chief secretary says