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Should the government be doing more to help millions of households facing the worst cost of living crisis in decades?

Should the government be doing more to help millions of households facing the worst cost of living crisis in decades?
4 min read

Britain faces its worst cost of living crisis for decades, exacerbated by the war in Ukraine and the pandemic. Pressure is mounting for more action from government. Sheila Amedodah from Dods Political Intelligence analyses the issues.

The United Kingdom finds itself in the midst of the worst cost of living crisis in decades, with trade unions urging the government to hold an emergency budget or risk a living standards emergency. 
Heating or food? Will I be able to afford this week’s food shop? What will happen to my wages? How much National Insurance will I be paying? 

These are the questions now on the minds of millions of working people as the country comes to terms with a new cost of living crisis.

The pandemic and the war in Ukraine have put pressure on the economy and energy supplies, causing inflation to rise to its highest level since the early 1990s. These figures are likely to rise further, with the Office for Budget Responsibility (OBR) forecasting that inflation will average 7.4 per cent by the end of this year. 

The Trades Union Congress (TUC) warns this will impact people directly and push households into poverty. 

“Years of standstill wages and cuts to social security have left millions of families exposed to soaring energy and food prices.   

“Without extra support, households across Britain will be pushed to the breadline.  

“The longer the government delays taking action the more damage will be done to people’s livelihoods,” the TUC told The House. 

The pandemic and the war in Ukraine have put pressure on the economy and energy supplies, causing inflation to rise to its highest level since the early 1990s

In his 2022 Spring Statement, the Chancellor announced he was giving working people a tax cut by increasing the threshold of National Insurance (NI) tax from £9,880 to £12,570 from July 2022, saving the typical employee more than £330 in the year from July. Though this is a partial U-turn on the NI rise announced in the last Budget, many experts argue this will still not be enough to alleviate cost of living-related stresses, as growth in wages has failed to keep up with inflation. 

Adam Corlett, principal economist at the Resolution Foundation, says the changes announced by the Chancellor are insufficient. “The medium-term plan of cutting the basic rate of income tax, even while tax thresholds are frozen and taxes on earnings have been increased, makes little sense and means those on lower incomes will bear a disproportionate share of rising taxes,” he says.

All of this comes as the Office for National Statistics found that key workers on the pandemic frontline could bear the brunt of the cost of living crisis, with their 4.3 per cent growth in annual pay failing to keep pace with high inflation rates. With inflation due to rise further, the Resolution Foundation warns that this year is currently forecast to be one of the biggest shocks to household incomes on record, adding the number of people living in absolute poverty may rise by more than a million.

The government stresses it has done its best to help working people during the crisis, with the Prime Minister stating there is a “limit to the amount of taxpayers’ money that can be used to help with energy bills”. 

The TUC, however, says there is more that could be done, arguing: “The Prime Minister should be asking those who make a fortune from their property and assets to pay a fairer share of tax."   
The union is urging the Chancellor to hold an emergency budget, in which he should announce a new National Minimum Wage of £10, alongside an uplift of Universal Credit and other benefits. The Resolution Foundation shares this view, arguing that the government should deliver an emergency benefit uprating in October at the latest.

A government spokesperson said: “We understand that people are struggling with the rising cost of living – we can’t shield everyone from the global challenges we face but we’re putting billions of pounds back into the pockets of hard-working families across the UK.”

 

Sheila Amedodah is a Dods Political Intelligence consultant.

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