by Peter Franklin
Wednesday, 23
March 2022
Analysis
15:00

Rishi Sunak could have helped the poor — but didn’t

We face a cost of living emergency that will hit the poorest hardest
by Peter Franklin
Rishi Sunak in the Commons today

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:

It’s not something money management can fix, it’s not something that for those on the lowest incomes telling them to cut their belts will work, we need political intervention.
- Martin Lewis

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.

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Stephen Walshe
Stephen Walshe
4 months ago

“In 2020, the new Chancellor rose to the challenge of Covid by doing what was necessary to avert financial catastrophe for millions of people”. This is nonsense. In reality, the splurge in government spending from March 2020 to fund furlough and so on, underpinned by unprecedented intervention by the BoE to suppress the cost of government borrowing through QE, made inflation inevitable. This was predicted at the time. Without QE, lockdowns would have been unaffordable and politically impossible. The government would have had to respond to Covid as governments had always previously responded to pandemics – by keeping the economy going, while increasing hospital capacity. Schools, shops and workplaces would have stayed open, and the level of money supply into the economy would have been kept under control. The war has allowed governments pretend that their actions in 2020-21, enabled by QE, did not cause the cost of living crisis. They did. Inflation is always and everywhere a monetary phenomenon. And whenever it is foolishly unleashed it is those on low fixed incomes with few physical assets who invariably suffer most.

Last edited 4 months ago by Stephen Walshe
Brendan O'Leary
Brendan O'Leary
4 months ago

What happened to “renewables are getting cheaper”?

Antony Hirst
Antony Hirst
4 months ago

Did anybody ever say that though?

Brendan O'Leary
Brendan O'Leary
4 months ago
Reply to  Antony Hirst

Google the phrase and marvel.

Lesley van Reenen
Lesley van Reenen
4 months ago

This was all so drearily predictable. Pay people to stay at home for two years and you have trouble. Add a few things like a major fuel problem and you have more trouble.

Lindsay Snoman
Lindsay Snoman
4 months ago

Not to mention that those paid to stay at home weren’t the lowest paid either. The lowest paid worked throughout the lockdowns. We called them keyworkers back then and clapped for them.

Prashant Kotak
Prashant Kotak
4 months ago

Yep. And those of us who kept yapping, that splurging billions around like confetti on furlough, and track and trace apps, and so on, was eventually going to cause a very long global depression, and would hit the very poorest of the world the hardest, were shouted down like heartless jerks.

Well, now comes the bill. And what people still don’t even remotely realise, is things are going to get worse than the most pessimistic fears, in the sense that there will be no escape from this hell for a couple of decades, no matter what type of government is in power, nor whatever ‘policies’ they do.

Nicky Samengo-Turner
Nicky Samengo-Turner
4 months ago
Reply to  Prashant Kotak

Hear hear!!

Jon Hawksley
Jon Hawksley
4 months ago

In my lifetime the proportion of a family’s income that goes on food clothes and energy has declined dramatically – for most people. Such people have significant disposable income, especially if they are house owners. They can cope with current inflation. Those less fortunate face a very different situation. A far higher percentage of their income goes on essentials and the prices of those essentials are rising faster than overall inflation. The grinning faces today of Boris Johnson, Rishi Sunak and Priti Patel shows the complete indifference the Government has to their plight. Is there any sense of public service or is it just a game?

polidori redux
polidori redux
4 months ago
Reply to  Jon Hawksley

Point taken, but don’t forget that even the apparently better off are, in many cases, financially committed to the hilt. We spend what we have got and don’t bargain for a decline in our standard of living. Have you not read that wonderful novel by Tom Wolfe, The Bonfire of The Vanities? How can a man be earning a million dollars a year and still be going broke?

polidori redux
polidori redux
4 months ago

The author thinks that there is a way out of this, but there isn’t and a lot of careers will go down the Swanee.
What we are witnessing is the culmination of decades of mismanagement, born of political cowardice and crass stupidity (Does Boris Johnson really think that his wife’s dinner party chums will vote for him because he is sacrificing poorer people to “Save The Planet”).
There is no way out of this mess, so the political class will simply panic and lash out in all directions. Stop voting for them. I know that this will not get us good government, whether you are “left” or “right” leaning (Terms that have lost all meaning anyway). But at least you can remove the figleaf of legitimacy that they hide behind – The pretence that they represent anything or anybody. As Peter Hitchens observed “The Tory Party exists to provide employment for the sons of gentlemen”. And remember, they are no longer even gentlemen. As for the Labour Party, it has morphed into a grotesque alliance between metropolitan Virtue – Signallers and Corbynite Headbangers. Leave them all standing naked before the world, and have a good laugh with your last glass of whatever you drink.

Last edited 4 months ago by polidori redux
Mike Wylde
Mike Wylde
4 months ago

But surely the smart meters that every second TV ad tells us gives us total control of our energy usage – and for which we have been paying for the last umpteen years – totally alleviates any rises in electricity costs? Or don’t they actually serve any purpose at all other than allowing electricity companies to do away with meter readings (and introduce time based charging later).

Surround Westminster with wind turbines, the hot air coming out of there should ensure 24/7 power to most of the population.

Alex Stonor
Alex Stonor
4 months ago

Sunak’s offering was pathetic. Also announced in the FT today was the massive tax payer bail out for Bulb the failed energy provider; and just as I was wondering, with all budgets cut (inc defence) what do the government do with our money?

D M
D M
4 months ago

With very little room for manoeuvre he chose to give a useful amount of national insurance relief to the workers who hold our society together. Is that such a bad thing ?

Colin Macdonald
Colin Macdonald
4 months ago

Good luck with subsidized gas and electricity. This would do nothing to increase supply and would likely lead to blackouts, as happened in South Africa. You do have the option of turning your heating down a bit, if we all did this perhaps the prices would come down.

Lesley van Reenen
Lesley van Reenen
4 months ago

South Africa have not had black outs. They have controlled load shedding…. A black out is unforeseen and is the worst outcome in electricity crises as getting the grid back up and working after a black out is apparently very difficult. Cold comfort, but….
I have a massive inverter and battery, so largely avoid electricity interference.

Nicky Samengo-Turner
Nicky Samengo-Turner
4 months ago

The only way to really help the poor is for GB to become a full blown, banking secrecy tax haven: inflows of capital and spend, and a treasury awash with cash

ralph bell
ralph bell
4 months ago

A tough period ahead, especially for families, but forcing people to cut unnecessary journeys and reduce house hold energy use could be seen as a good thing especially in cutting back on energy use. People have far higher monthly costs on media, mobiles etc well as Car PEP deals which are not essential. Hard decisions will have to be made…