Johnson pressed to scrap £12bn NI rise amid cost of living crisis

Boris Johnson has been challenged by a senior cabinet minister to scrap a planned £12bn tax rise in April, as Jacob Rees-Mogg put himself at the head of a growing Tory cost of living revolt.

Rees-Mogg, Leader of the House of Commons, told the cabinet that the national insurance rise — intended to fund NHS and social care — could not be justified at a time of rising inflation and soaring energy bills.

The cabinet tensions that erupted on Wednesday, confirmed by multiple senior officials, reflect growing pressure on Johnson and chancellor Rishi Sunak to alleviate a cost of living crisis, which will peak in April.

Some Tory MPs are pressing Sunak to scrap VAT and so-called “green levies” from household energy bills. Rocketing wholesale gas prices could mean that the price cap on average bills rises from £1,277 towards £2,000 in April.

But Rees-Mogg’s call for the government to shelve a 1.25 percentage point rise in national insurance — paid by employers and employees — is incendiary and reflects unease among Tory MPs about high levels of tax.

Sunak pushed back strongly against any suggestion that the rise, branded a “health and social care levy”, should be postponed or scrapped. “The money isn’t coming from thin air,” said one ally of the chancellor.

One government insider briefed on the cabinet meeting said Rees-Mogg felt that “finding savings would be more frugal and responsible” than raising taxes to fund improvements to health and social care.

Sunak has put Britain on course for its highest overall tax burden since 1950 but insists he wants to cut taxes before the election. Some Tory MPs believe he should start now, to help households facing a surge of inflation towards 6 per cent and a squeeze on household budgets.

Angela Rayner, Labour’s deputy leader, said a cost of living “iceberg” was looming and called on the government to cut to zero the current 5 per cent VAT rate on energy bills.

Lord David Frost, former Brexit minister, quit last month, citing frustration about the “direction” of the government and voicing concern about the high level of taxes.

Colleagues of Rees-Mogg said he was also “increasingly unhappy” at the direction of government policy, including over Plan B Covid-19 restrictions introduced in December, featuring 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 rise.

They insisted relations between Rees-Mogg and Johnson were good, in spite of tensions over the Leader of the House’s support for an ill-fated plan to save disgraced ex-minister Owen Paterson by scrapping the parliamentary standards system.

The Resolution Foundation think tank calculates the combined impact of the national insurance rise in April — which would raise £12bn a year — and a freeze to income tax thresholds is £600 per household.

Meanwhile, chief executives from the “Big Six” largest household energy companies used a meeting with business secretary Kwasi Kwarteng to set out detailed proposals for how to tackle the looming jump in energy bills in the spring.

Spiralling wholesale gas prices have already prompted the collapse of 26 energy companies.

The two-hour meeting between Kwarteng and executives on Wednesday was ostensibly 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 press the minister to either shift green levies from bills to general taxation, cut VAT on fuel, or create a mechanism to prevent financial damage to the sector.

Executives put forward proposals for a “contracts for difference” mechanism whereby companies would receive subsidies if the wholesale price crossed a certain threshold — and pay back money if it fell. However the executives did not agree a single mechanism for how this would work.

But one senior energy industry executive said: “The Treasury and No 10 are pretty resistant to the idea that this is going to spill over into the broader economy.”

The executive pointed to forecasts by economists at Investec that the sharp rise in energy bills in April could add 1.8 percentage points to inflation.