Splits have emerged between Boris Johnson and Rishi Sunak over how to respond to Labour’s call for a windfall tax on energy companies.
Sky News understands that Mr Sunak regarded it as unhelpful that Tory MPs were ordered to vote against the policy – which is intended to pay for a cut in household energy bills.
Government sources told The Sun newspaper that the chancellor’s team had “pushed hard” to abstain on the vote but were overruled by Number 10.
Politics hub: Rishi Sunak accused of being ‘tone deaf’ over cost of living
Sky News understands Treasury officials now think it will be quite hard to avoid introducing the levy.
The Times reported that they were being blocked by Mr Johnson’s advisers, one of whom told the paper that it would be an “ideologically unconservative thing to do”.
Downing Street faces a growing clamour to impose a windfall tax on the oil and gas companies that have enjoyed bumper profits as prices soar.
The funds raised would be used to pay for money off spiralling energy bills – which is the key factor in the cost of living squeeze facing British consumers.
Official figures this week showed inflation surged to 9%, a four-decade high, in April, and the Bank of England forecasts that it will top 10% later this year.
In a speech to the CBI on Wednesday, the chancellor admitted that the “next few months will be tough” and said ministers “stand ready to do more” but failed to outline any immediate action.
Sir Keir Starmer has accused the prime minister of dithering over the windfall tax policy, claiming the government would eventually do a U-turn and back it.
Sir Keir said during Prime Minister’s Questions in the House of Commons that every day the PM delayed backing the tax he was “choosing to let people struggle when they don’t need to”.
The PM hit back by saying that Labour’s plans were “always and everywhere to raise taxes on businesses”.
But he added: “Of course we will look at all the measures that we need to take to get people through to the other side but the only reason we can do that is because we took the tough decisions that were necessary during the pandemic.”
Conservative former minister Robert Halfon and Mel Stride, Tory chairman of the Treasury select committee, had both indicated support for the windfall tax policy.
Earlier this week, during a Commons debate, Mr Sunak refused to rule out introducing the levy.
He told MPs he does not believe that windfall taxes are the solution to every problem, but that if oil and gas giants do not invest their profits back into “growth, job and energy security” then the policy could be introduced.
“If it doesn’t happen soon and at a significant scale then no option is off the table,” he said.
Mr Sunak has previously said he is not “naturally attracted” to the idea of a windfall tax but that he would be “pragmatic about it” in light of the large profits oil and gas companies are currently generating.
On Thursday, Liberal Democrat leader Sir Ed Davey accused the government of “dithering and delaying” over the cost of living.
He told Sky News: “They’ve got to do something now.
“I’m really worried that people out there are getting more and more anxious about the future.
“They’ve heard this is going to get worse, that we could be entering a recession, energy bills will go up further in the autumn and they have a government that seems tone deaf.”
Labour’s shadow levelling up secretary Lisa Nandy told Sky News: “Every single pound that goes into people’s pockets at the moment can be the difference between make or break. Most people now are struggling to keep their heads above water.”
Ms Nandy said ministers should be “doing every single thing they can, moving heaven and earth to help people at the moment”.
CBI chief economist Rain Newton-Smith said the chancellor needs to introduce “really targeted help for the most vulnerable in society” with a “really tough year ahead”.