We face a cost of living emergency that will hit the poorest hardest
The latest inflation figures are bad enough. According to the ONS, the Consumer Prices Index (CPI) “rose by 6.2% in the 12 months to February 2022, up from 5.5% in January.” That means that prices went up by the best part of 1% over the last month alone.
But this is before the massive rise in fossil fuel prices has its full effect on household finances. The energy price cap will go up by 54% on the 1st April — adding £700 to an average energy bill. Six months later the cap will be raised again. We don’t know how much by, but a similar increase is expected — which would push up the average bill to something like £3,000.
Factor in petrol prices and the general impact of energy costs (still in the process of being passed on to consumers) and it’s clear that we face a cost of living emergency. In his Spring Statement today, the Chancellor said that inflation would come back under control by the end of this Parliament. But unless we see an outright fall in prices in 2023 and 2024 then that means that the thousands of pounds now being added to the cost of living will become a perennial burden.
This is taking place against a background of anaemic wage growth, which once again is falling behind the rate of inflation. There’s also the unsolved housing crisis — pushing up living costs for tenants (and for mortgage payers too if interest rates rise).
The rise in energy bills is sometimes expressed as an equivalent rise in income tax. But that’s a misleading comparison. By definition, each 1% rise in income tax is proportionate to the level of income above a tax threshold. Unfortunately, there’s nothing much progressive about a bigger energy bill. It is more like a poll tax, hitting households irrespective of ability to pay.
How will the poorest families and individuals cope? The chilling verdict of personal finance expert Martin Lewis is that they won’t:
Today, Rishi Sunak could have intervened — directing emergency support to the most vulnerable households — but he didn’t. He was focused on the medium term, i.e. the next election and next Tory leadership contest. His tax-cutting package was directed towards the the ‘strivers’ (i.e. hard working families with modest earnings). There was very little there for the ‘strugglers’ on the lowest incomes.
In 2020, the new Chancellor rose to the challenge of Covid by doing what was necessary to avert financial catastrophe for millions of people. Two years later, the most vulnerable households once again find themselves on the precipice, but, today, that’s where Rishi Sunak left them.