Boris Johnson was challenged by a senior minister to scrap a planned £ 12 billion tax increase in April as Jacob Rees-Mogg put himself at the forefront of a growing Tory cost of living revolt.
Rees-Mogg, leader of the House of Commons, told the cabinet that the national insurance increase – which is intended to fund NHS and social care – could not be justified in a time of rising inflation and rising energy bills.
The cabinet tensions that erupted on Wednesday, confirmed by several senior officials, reflect increasing pressure on Johnson and Chancellor Rishi Sunak to ease a cost-of-living crisis, which will peak in April.
Some Tory MPs are pushing Sunak to scrap VAT and so-called “green charges” from household energy bills. Rising wholesale gas prices could mean that the price limit on average accounts rises from £ 1,277 to £ 2,000 in April.
But Rees-Mogg’s call for the government to stop a 1.25 percentage point increase in national insurance – paid for by employers and employees – is provocative and reflects unrest among Tory MPs over high tax levels.
Sunak strongly opposed any proposal that the increase, which is described as a “health and social care levy”, be postponed or scrapped. “The money does not come from the air,” said one ally of the chancellor.
One government insider briefed on the cabinet meeting said Rees-Mogg felt that “savings would be more economical and responsible” than raising taxes to fund health and social care improvements.
Sunak has put Britain on track for its highest overall tax burden since 1950, but insists it wants to cut taxes before the election. Some Tory MPs believe he should now start helping households facing a surge in inflation to 6 per cent and a squeeze on household budgets.
Angela Rayner, Labor’s deputy leader, said a cost of living “iceberg” was threatening and called on the government to reduce the current 5 percent VAT rate on energy bills to zero.
Former Brexit minister Lord David Frost resigned last month, citing frustration over the government’s “direction” and expressing concern about the high level of taxation.
Colleagues of Rees-Mogg said he was also “increasingly unhappy” about the direction of government policy, including over Plan B Covid-19 restrictions introduced in December, with vaccine passports.
But Rees-Mogg’s allies insisted the minister was a “loyal supporter” of the prime minister and his agenda. They declined to comment on his intervention on the planned national insurance increase.
They insisted that relations between Rees-Mogg and Johnson were good, despite tensions over the House’s leader’s support for a fatal plan to save the infamous former minister Owen Paterson by scrapping the system of parliamentary standards .
The Resolution Foundation think tank calculates the combined impact of the national insurance increase in April – which would raise £ 12 billion a year – and a freeze to income tax thresholds is £ 600 per household.
Meanwhile, CEOs of the “Big Six” largest domestic energy companies used a meeting with Business Secretary Kwasi Kwarteng to outline detailed proposals on how to tackle the looming jump in energy bills in the spring.
Rising wholesale gas prices have already led to the collapse of 26 energy companies.
The two-hour meeting between Kwarteng and CEOs on Wednesday was apparently to discuss the long-term future of the industry and prevent a similar crisis in the future. However, the industry leaders took the opportunity to pressure the minister to either shift green levies from accounts to general taxation, cut VAT on fuel, or create a mechanism to prevent financial damage to the sector.
Managers have proposed a “contracts for difference” mechanism whereby companies will receive subsidies if the wholesale price exceeds a certain threshold – and repay money if it falls. However, the executives did not agree on a single mechanism for how it would work.
But one senior manager of the energy industry said: “The Treasury and No 10 are quite resistant to the idea that it is going to spill over into the broader economy.”
The CEO pointed to forecasts by economists at Investec that the sharp rise in energy bills in April could add 1.8 percentage points to inflation.