Do Sunak’s Measures Go Far Enough to Tackle the UK’s Cost-of-Living Crisis?
On February 3, 2022, Britain’s chancellor of the exchequer Rishi Sunak announced plans to provide billions in financial support for struggling households in the UK. Designed to counter a cost-of-living crisis triggered by soaring energy costs, the raft of measures announced by the UK government includes a £150 council tax rebate for every household in April as well as a £200 energy rebate in October, part of a £9 billion support package of tax relief and loans.
Sunak’s statement came on the same day that the UK energy regulator announced that it would be raising the price cap on energy bills to just over £2,000, equating to a 54 percent increase that will affect 22 million households. Ofgem chief executive Jonathan Brearley explained that rising costs reflect an “unprecedented increase in global gas prices,” with the wholesale price of natural gas quadrupling over the last 12 months. Piling still more pressure on British households, the Bank of England also announced that it would be doubling interest rates to 0.5 percent.
Acknowledging that spiraling energy costs would be difficult to endure and that the country’s rapidly increasing cost of living was the “number one issue” for millions of families, chancellor Rishi Sunak announced plans to cushion the blow of energy cost increases, although he did caution that the government could not keep energy prices “artificially low,” saying that to do so in the face of soaring gas prices would be “dishonest.”
Critics assert that the government’s measures simply do not go far enough. Several charities have pointed out that the price increase would hit Britain’s most in-need families hardest. According to the Resolution Foundation, the hike in costs could force up to a quarter of UK households into fuel poverty, meaning that after the rent or mortgage payment, more than 10 percent of a household’s remaining income is spent on energy.
In addition to a £200 energy bill rebate in October 2022, council tax rebates will be issued to millions of people falling within the lowest council tax bands. Funded by £3.5 billion of government grants, the rebates are designed to ensure that those living in the lowest-value properties receive the most. The rebate, which will benefit 4 out of 5 UK households, will be issued by local councils in April 2022 and will not be repayable.
The UK economy faces a triple whammy in the months ahead, with soaring energy prices, increased interest rates, and wages failing to keep pace with price increases. Despite this, Sunak opened his statement with surprising buoyancy, telling MPs that the economy was doing quite well thanks to falling unemployment rates combined with a reduction in government borrowing. The picture painted by the Bank of England was somewhat less optimistic, predicting that inflation would peak at 7 percent in April. The central bank also warned of a marked slowdown in the economy following the bounce-back from recently shelved COVID restrictions in the UK.
According to Sunak, his package is being implemented to effectively meet families halfway and swallow half of the cost of increasing energy prices. Inevitably though, all British households will be worse off, a fact that does not bode well for the country’s economic forecast. Charities warn that in many of Britain’s households, parents will inevitably be forced to choose between paying for energy or food, leaving many children in the UK cold, hungry, or both in the months ahead.
Despite economic uncertainties created by Brexit, COVID, and inflation, many economists contend that the UK’s long-range economic forecast is somewhat rosier. A forecast of the 2040s world economy published in January 2022 highlights immigration and decarbonization as critical factors for an uptick in the UK economy. Operating one of the most strident COVID-vaccination programs in the world, the UK government hopes to make the pandemic a distant memory by 2023. To put this in perspective, the scars of the 1918–19 “Spanish flu” pandemic had largely healed by the late 1920s, albeit replaced by even more worrying issues.
Just after Christmas 2021, the London-based Centre for Economics and Business Research published its World Economic League Table. In it, the think tank predicted that the Chinese economy would surpass the US’ by 2030, and that India would overtake France in 2023 to become the world’s third-richest country in 2031, behind China and the US.
Reviewing Goldman Sachs’ 2001 BRICs Report, the Centre for Economics and Business Research calculated that the UK’s overall economic prospects remained largely unchanged despite the short-term downturn and predicted that the UK economy would surpass that of both France and Germany by 2040. The organization cited the driving force behind this as demography, underlining the importance of a young population and large workforce as critical determinants of economic growth.
Across the Atlantic, the US is predicted to not only remain the developed world’s most dominant country but become steadily more dominant, continuing to outpace Japan and Europe as it has for a quarter of a century.
