The flurry of announcements from Rachel Reeves looks like a very small Budget, in which a few hundred million pounds have been raised by an obscure tax on oil companies and spent on a series of small measures designed to look as if they are helping with the cost of living.
It is almost as if the chancellor is worried that her job is at risk in the reshuffle that might follow if Andy Burnham wins the Makerfield by-election. Hence the giveaways: the freeze on fuel duty extended; cheaper imported food; and the “Great British Summer Savings – funded by the UK government”.
This is a Treasury-branded campaign that looks like “Eat Out to Help Out”, offering a VAT cut on children’s meals in restaurants, children’s tickets for theatres and cinemas, and tickets for everyone to attractions like soft play, adventure centres, and theme parks. Plus free buses for children in August across England.
And Reeves was told off by the deputy speaker of the Commons for launching it in a TikTok video before she made her statement in parliament.
There are three elements. One is the postponement of a 5p-a-litre rise in tax on petrol and diesel, which was due in October – but only to the end of the year. That was announced on Wednesday to give Keir Starmer a cheer at Prime Minister’s Questions.
Then there is the cut in food tariffs, which was announced overnight. The cut is not happening yet. The Treasury statement said: “The government is launching a business engagement exercise, with a view to making further targeted cuts to agri-food tariffs.” The plan is to suspend tariffs on products “including biscuits, chocolate and dried fruit and nuts”.
The full list of products will be published next week. “The expected benefit to consumers is more than £150m a year,” said the Treasury, which is about £10 per household.
The “Great British Summer Savings”, which cuts VAT for nine and a half weeks from 25 June to 1 September (with children going free on buses throughout August), is “estimated to cost about £300m”.
The fuel duty freeze and the tariff cut are unfunded, and will be sorted out in the Budget in the autumn. Cutting tariffs is generally a good idea – contrary to Donald Trump’s economically illiterate view – and should boost trade if reciprocated, but the £150m annual cost still has to be paid for.
The Summer Savings plan will be funded, approximately, by abolishing the “foreign branches exemption” so that multinational companies cannot use it to reduce the tax they pay in the UK.
Reeves told the Commons: “Currently, some oil and gas groups that operate overseas through foreign branches have structured their tax affairs in a way which ensures they pay little or no corporation tax on their UK energy trading profits. Today, we are putting an end to that practice.”
She said the change is expected to raise “hundreds of millions of pounds a year”, although the costings will have to be certified by the Office for Budget Responsibility.
Economists say that a tax cut, which is what the fuel duty freeze is once inflation is taken into account, is the wrong response to a price shock. Before the Iran war, the longstanding freeze meant that petrol was cheaper in real terms than it had been for decades, and higher tax would help to encourage people to save fuel and switch to electric vehicles.
Meanwhile, the tariff cuts have been criticised for encouraging people to eat more chocolate and biscuits – although we don’t know what other foods might be on the list.
As for the Summer Savings, they are likely to be popular – especially with the “just about managing” families who might resent the concessions sometimes available to families on benefits.
But is it the right priority for tax cuts, if money can be raised from extra taxes on oil companies? It feels a little like using taxpayers’ money to subsidise prices, hoping that the recipients will be grateful and that the inflation figures will be artificially suppressed, even if it is only for nine and half weeks.
