What could the government do to fix the cost of living crisis?
Boris Johnson has reportedly asked his cabinet to come up with solutions to the crisis “without solely relying on new government spend”. Here’s what the experts say – and it does involve government spend.
Energy bills and increasing food costs are the main drivers of the cost of living crisis. Image: yisris/Flickr
Boris Johnson has urged his cabinet to focus efforts on the devastating cost of living crisis affecting millions of people across the country.
Reports this week suggest the prime minister has asked for solutions to the crisis, albeit with a pretty big caveat that his ministers do so “without solely relying on new government spend”.
Consequently, a targeted PR campaign is set to be launched, in lieu of any practical policies to help low- and middle-income households cope with the spiralling costs of energy, food, and transport, which are rising faster than incomes.
It will encourage citizens to take advantage of existing schemes, such as tax-free childcare of about £2,000 a year – that 1.3 million households are still to claim – and pension credit, which is worth over £3,300 a year.
Meanwhile, Labour is pushing for an emergency budget, and said it would enact five measures to help households manage their budgets.
These include introducing a windfall tax on oil and gas producers to cut home energy bills by £600, scrapping the national insurance rise, instructing the National Crime Agency to investigate £11.8billion of Covid fraud and error, ramping up home insulation across the country to save on energy bills and introducing a discount on business rates for small and medium sized businesses paid for by a tax on online giants.
However, such measures are unlikely to get the go-ahead from the government.
British families are facing the largest fall in incomes for over 50 years, with an increase in energy bills, council tax and the effects of a national insurance tax rise – as well as inflation hitting a 30 year high of 7 per cent earlier early in April.
One in five were already struggling financially, before the cost of living crisis.
Here are the policies that could make a difference in helping families through this once-in-a-lifetime rise in prices, as recommended by experts.
Help with energy bills
Think tank the IPPR recommends increasing the warm homes discount – which is currently worth £140 to 2.2 million low-income families – to £540, saying it would help 8.5 million households in receipt of either pension credit or working-age benefits.
It also suggests that environmental and social levies are shifted onto general taxation, reducing average bills by at least £126 a year.
Another way to help cut energy bills in the longer term would be by investing £18billion over the next four years into home insulation and low carbon heating.
Additionally, IPPR says that by accelerating the investment into renewable power, and fully backing onshore wind as a quick, cheap, and popular means of cleaning our energy supply, it would reduce the demand for volatile fossil fuels.
As worldwide demand for oil and gas continues to outstrip supply, it has pushed up prices for everyone, but the UK remains especially vulnerable due to stalling progress on renewables, energy efficiency and energy storage.
By levying a windfall tax on the profits of oil and gas companies – which are making record profits from the dramatic increases in energy prices – it would help ordinary families pay their higher bills, the IPPR says.
This idea was originally proposed by Labour a month ago, but has been taken up by both the Liberal Democrats and Greens, and even some Conservative MPs.
In 1997, chancellor Gordon Brown announced a windfall tax in his first Budget, on companies that had been previously privatised, such as Scottish Power and BT.
Help tackle rising food prices, and give people cash instead of food bank tokens
The average food bill could increase by £271 this year as prices continue to rise.
Grocery prices were 5.9 per cent higher in April than a year ago, the biggest increase since December 2011, according to research company Kantar.
Discount retailers Aldi and Lidl have received more than one million extra shoppers over the 12 weeks to April 17, compared with this time last year, achieving record-breaking market shares.
As supermarkets battle for customers who are trying to manage dwindling household budgets, lowering food prices is an obvious step to help those who are struggling.
For example, on Monday Morrisons and Asda – who have both been losing customers to Aldi and Lidl -said they were cutting prices on hundreds of products.
The Sun has reported that the government is considering cutting tariffs on food which can’t be produced in Britain and has to be imported, such as rice, to help lower prices.
And, as food banks are increasingly overwhelmed, local authorities are calling for the government to help deliver a ‘cash first approach’ to food insecurity, as recommended by the Independent Food Aid Network.
It means prioritising income-based options for people impacted by poverty, ensuring any emergency food parcel is the last resort.
Sabine Goodwin, coordinator for the Independent Food Aid Network, previously told The Big Issue that “a charitable food aid response is unsustainable, undignified, and ineffective”, and argues that income-based, cash first solutions, can be used to end the need for food banks in the UK.
The IPPR is also calling for a policy combining an increase in universal credit and legacy benefits of 8.1 per cent and a rise in child benefit by £10 per child per week.
Such a package would cost just £1.5 billion more than Sunak’s Spring Statement plan, but would keep the impact of the cost of living crisis on the poorest below £200.
Jeevun Sandher, an economist at King’s College London researching inequality, and a former Treasury Official, believes a three-point-plan should be enacted to help families.
He argues that considering a third of our economy was shutdown during successive coronavirus lockdowns and incomes were supported, the government should be taking similarly decisive action.
Measures such as sending a £1,000 cheque to every household, raising social security payments in line with prices, and restoring the Universal Credit Uplift, would equate to half of what was spent on the furlough scheme, and would make a substantial difference.
Sandher told The Big Issue: “There is only one reliable way to help families who can’t make ends meet. And that is with cold, hard cash. The Prime Minister can make all the glitzy policy announcements he likes, but if they don’t involve putting money in people’s pockets, they will not help. Talk may be cheap but it doesn’t help to pay the bills.”
Additionally, the Resolution Foundation recommends using the purpose-built universal credit system to target support to those who need it most (i.e. the lowest-income households) rather than either using systems which aren’t built for this purpose (for example the council tax rebate) or creating a new system (which was recently mooted by business leaders).
In particular, it suggests uprating benefits in line with inflation this year, as the current uprating means a real-terms cut in the value of benefits of over £10 billion.