After weeks of speculation, the Chancellor has finally announced a package of measures to help people with the cost-of-living crisis, alongside a ‘windfall tax’ on the profits of oil and gas companies.
There has been much cynicism about the timing of the announcement, coming a day after the release of the Sue Gray ‘Partygate’ report. One can see this in many lights, and few of them look good. But I was most taken by the view expressed by one commentator that if the ‘political need’ for a big story pulled the announcement earlier, that is a good thing. At least it has reduced the worry for many families who now know the level of support they will receive from the government.
Let’s talk about what the Chancellor announced. I’ll focus more on the spending rather than the taxation, as I think that’s what’s most relevant.
To put it simply, that’s £400 to every household, and potentially up to £1100 more, primarily targeted towards low-income households.
A few observations: firstly, it’s actually quite a large amount of support. But then again, the scale of the problem is quite large. We’ve calculated here at Nous that typical family households could be facing increases of £3000 to £5000 over the next 12 months between all the various increases (domestic energy, petrol, interest rates, National Insurance, food, rail tickets, inflationary utility price rises, and so forth). So, whilst it’s a lot of money, it won’t solve the problem for households that are really feeling the squeeze. As such, people need to be clear that the Chancellor hasn’t made all of their problems go away – there’s still going to be a squeeze, and it’s likely to hurt. As is often the case, those who are close to, but remain above, the line for means-tested benefits are likely to find the next period very economically challenging indeed.
Secondly, what it might do is keep households spending (which is critical), and restore some consumer confidence to the economy. Many sectors have been reporting real slow-downs of late as customers start to hold on to their cash.
Thirdly, it's interesting how ideologically ‘un-conservative’ it is. Some might say that the current regime is low on ideology and high on spin, but once again it is surprising to see a blue government raising taxes and spending money in such a way. This seems to be a very definite outlook shift, perhaps influenced by the pandemic (remember, this is by no means the largest fiscal intervention of recent times).
Let’s quickly touch on the other side of it – raising taxes on oil and gas companies. (In the small print it appears as if the government has left the door open on potentially introducing a tax on electricity generating companies as well.) Some will say ‘he had to get the money from somewhere’. He could have increased borrowing, of course, although we have done a lot of that during the pandemic, and in recent years more broadly.
I think what this does is to create a neat political link between those who are ‘benefitting’ right now (upstream energy companies) and the transfer to those who are ‘losing’, or being helped. At least the Chancellor did not lay the burden further on the general public like he did with the National Insurance (Health and Social Care Levy) rise, which has brought the tax burden to the highest point since the Second World War at a time when many households are facing a perilous economic year ahead.
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