With respect to their proposals for relieving rising energy prices, the focus of the Conservative leadership contest has come down to a difference between Truss, who favours tax cuts, and Sunak, who favours direct interventions.
Whilst one can argue about the technicalities of how effective tax cuts or direct cash interventions can be when addressing the needs of stressed consumers facing exponential increases in their bills, ultimately the consequences of either will be inflationary. The proper response to a price rise is to reduce consumption. The purpose of the proposed tax cut, or cash rebate, is to maintain consumption at the higher price level. Given that both of them will have to be funded by borrowing, the consequence will be to put even further pressure on prices, prolonging inflation.
The increase in energy and food prices is driven by the war in Ukraine. At the outset, I warned that sanctioning Russia for its invasion of Ukraine also meant sanctioning ourselves and that the public needed to understand the consequences that would follow.
Winston Churchill said in his history The second World War, that the British people were resilient and could endure enormous hardship if they understood why it was necessary. What they would not forgive however, was being taken for fools, being given false hope, promises that could not be delivered.
I hope that this fortitude and resilience has not deserted us in the intervening years. We need to understand that we have, with our allies, declared economic war on Russia because of its unprovoked attack on an independent democracy. This was the right course of action to secure peace and our future security. We have learnt from the mistakes of the policy of appeasing dictators that preceded the Second World War. But the consequence is our current economic hardship, which is bound to intensify over the coming winter. We need to resolve to steel ourselves for it and rise to the challenge.
As to false hope and promises that cannot be delivered, surely the notion that the Government can and ought to pay our energy bills for us has to be among the more ludicrous of them. Where on earth do we imagine the money is to come from?
It has to come from cutting expenditure elsewhere, or from borrowing which will have to be repaid -with ever increasing rates of interest- by higher taxes later which will stifle hopes for economic growth.
Perhaps the only even more ludicrous notion is that we should just refuse to pay our bills and carry on consuming. Nothing would be more damning for our reputation as a country in which to invest, let alone the longer-term consequences for our energy security. It would be a national disaster, an act of sheer madness.
Whilst we are not ourselves being bombarded and subjected to a brutal assault, we have chosen to stand by Ukraine. The price of our support in this endeavour to defeat barbarism, are the hardships we now have to endure: …There’s a war on.