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A stark warning that Britain’s worsening economy will cause “difficult social issues” heaped fresh pressure on Gordon Brown yesterday, as more members of his Government broke ranks to demand a windfall tax.
The Prime Minister faces the prospect of the resignation of at least one ministerial aide if he fails to impose a new levy on energy companies’ profits, The Times has learnt.
A petition calling for a windfall tax has been signed by 70 Labour MPs, including three ministerial aides. Five other junior members of the Government have told The Times that they are backing the campaign. They include Rob Marris, Parliamentary Private Secretary (PPS) to Shaun Woodward, the Secretary of State for Northern Ireland, who indicated that he may quit over the issue.
“I’m sure there will be a change of policy this autumn. What the detail is of that change will determine the level of my enthusiasm for remaining,” said Mr Marris.
David Kidney, PPS to Rosie Winterton, said that he had written to Alistair Darling, the Chancellor, urging him to find ways of forcing the energy companies to do more to help hard-up customers.
The union-backed campaign for substantial handouts funded from a windfall tax will draw further strength from a bleak assessment of the social impact of the downturn by Charles Bean, the new deputy governor of the Bank of England.
Professor Bean said that the country was set for a “tricky period” while the global economic slowdown drags on “for some considerable time”. “Household real income is very low. That will make it difficult for households and there are difficult social issues that will arise,” said Professor Bean. He said that Britain was facing the biggest challenge since the 1970s with confidence rocked by a series of financial “grenades”.
Official figures last week revealed that growth in the economy stalled in the second quarter of the year while home repossessions and unemployment are starting to rise. Numbers out of work and claiming jobless benefits have now risen for six months in a row, by a total of 70,000 between February and last month. County courts in England and Wales issued 28,658 repossession orders between April and June as banks and building societies clamped down on borrowers who fell behind with mortgage payments.
Mr Brown has spent the summer working on a package of help for poorer families to cope with rising fuel, food and housing costs. The scale of the handouts to be unveiled in the autumn could determine the Prime Minister’s political future and without new revenue-raising measures the scope for action is severely limited.
Faced with the opposition of Mr Darling and John Hutton, the Business Secretary, to a windfall tax, Mr Brown is understood to favour forcing energy companies to pay more for pollution permits issued under the European Union’s carbon-trading scheme rather than a tax on profits. But the measure would raise only £500 million: a fraction of what is needed, according to windfall tax campaigners.
Richard Lambert, Director-General of the CBI, has cautioned that increasing taxes could risk much-needed investment. “Some vulnerable citizens are going to need help – for example, when it comes to paying their fuel bills this winter. The worst way to approach this would be though an arbitrary and unfair tax raid, that would jeopardise badly needed investment in our energy infrastructure in the years ahead.”
Professor Bean, speaking at a conference of top central bank chiefs and economists in the US mountain resort of Jackson Hole, Wyoming, said that the Bank was alert to the danger of further setbacks to the economy if the credit crunch leads to further casualties among big financial institutions.
“We have our fingers crossed but there is the recognition there is still quite a long way to go yet,” he said. “There are periods when markets look like they are getting better. Then another grenade explodes, another bout of fear of sustainability of some financial institutions, maybe intervention by the authorities. It has been very much ebb and flow.”
The Deputy Governor sought to strike a more reassuring note, however, arguing that should a recent slide in the cost of crude oil and other commodities continue there was hope that the economy could return to growth next year.
“On the assumption commodity prices remain stable and if anything fall back, then inflation should drop back as we go through next year. One would hope that the conditions in credit markets should gradually start to improve, and those two factors will help to ensure growth will start to pick up as we go through next year,” he said. “But the important thing is people realise this is just a transitory period of subdued growth and we will get through the other side and growth will resume to more normal levels.”
Vince Cable, Liberal Democrat Treasury spokesman, said: “Charles Bean’s comments highlight the fact that the British economy is to a large extent in freefall and there’s not a great deal the Government or the Bank of England can do about it.
“Ministers need to focus their efforts on protecting those at greatest risk. That means greater support for people living under the threat of having their homes repossessed and helping the large number of vulnerable people who will be hit with huge energy bills this winter.”
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