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Boosting benefits is the right way to tackle the cost of living crisis

Boosting benefits is the right way to tackle the cost of living crisis
4 min read

Help is coming. That is the clear message from both Conservative leadership camps as families across the country brace themselves for unprecedented increases in energy prices.

But, with the candidates understandably wanting to avoid being boxed-in with specific commitments and the current administration treading water until the contest is over, the new prime minister will need to act quickly to demonstrate they have a plan for getting the country through this extraordinary period.

Ofgem’s move to quarterly energy price caps means that consumers face a succession of potentially crippling hikes. The October cap will be announced on Friday and could see the average typical bill soar to more than £3,500. Some analysts see bills reaching £6,000 by the middle of 2023.

The country needs to see the new prime minister pressing the energy industry to do far more to ease the burden on households

For many households, these numbers go way beyond the level where some good budgeting can keep heads above water. The combination of soaring energy and food prices will make the trade-off between heating and eating a harsh reality for millions more people.

So, an early decision for the new prime minister will be whether the October price cap hike should go ahead at all. They will be under pressure to find a way to avoid it.

But attempting to freeze electricity prices and compensate suppliers would be incredibly expensive, poorly targeted and could prove short-lived if wholesale prices do not fall back next year. The ongoing conflict with Russia is likely to keep prices high.  

The government’s first duty in a crisis like this is to support the most vulnerable. The simplest approach, in the short term, would be to continue the system of emergency payments already in place. But realistically, these payments will need to at least double if they are to provide meaningful assistance for the coming price increases.

Over a prolonged period, boosting regular social security payments is a better approach than lumpy one-off payments. The £20 per week uplift to Universal Credit, for example, was one of the best targeted and most effective interventions during the pandemic. Ahead of a potential double-digit uprating of benefits and pensions next April, Conservatives should be ready to talk about the importance of strengthening social security in times of crisis.

In terms of other levers available, cutting VAT on domestic energy will be near the top of the list. Although it would benefit rich and poor alike, its universality could make it attractive to the new administration who will want to show they are helping a wider pool of people than just pensioners and those on benefits.

But, as with the recent five pence cut in fuel duty, the danger is that it barely touches the sides and consumers feel no benefit. On balance, the £3bn cost could be spent better elsewhere.

Removing the so-called green levies from household bills would be popular in some quarters. But, given the role they play in supporting the renewal of our energy system and driving lower costs over the medium and long term, ministers should tread very carefully.

Fiscal levers aside, the country needs to see the new prime minister pressing the energy industry to do far more to ease the burden on households. Yesterday the National Grid proposed discounts for consumers on smart meters who avoid using electricity at peak times. This is a useful proposal although, up to now, the industry has hardly been fizzing with ideas for cutting bills. 

Between the global energy giants enjoying record profits and the electricity suppliers going bust and falling back on the taxpayer, customers can be forgiven for wondering what on earth is going on inside this complex sector.

In rhetoric, tone and concrete action, the new administration will need to convince the public that it stands squarely on their side during this extraordinarily challenging period. The window for doing that will be very narrow indeed, and with no simple solutions to hand.

 

Stephen Crabb is the Conservative MP for Preseli Pembrokeshire and former work and pensions secretary. 

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