The cost of living

Think tank: Centre for Social Justice

Author(s): Gavin Rice

May 21, 2022

This report from UK think tank the Centre for Social Justice looks at how to alleviate the cost of living crisis.

Britain is facing an inflationary surge unprecedented this century. At the time of writing, the rate of inflation was at an historic high of 9 per cent, with the Bank of England now forecasting the Consumer Price Index (CPI) to breach 10 per cent this year. This is already piling pressure on household incomes. With prices now rising at double the speed they were following the 2008 financial crisis, the average family will find themselves £1,200 worse off in real terms. The Bank of England now predicts at least a quarter of negative growth in 2023 and almost zero growth for the foreseeable future. The UK is facing a triple whammy – rising interest rates, rising taxes and rapid inflation The Chancellor took steps at the Spring Statement to alleviate the worst effects of surging inflation, including a £200 loan to help with energy bills, a Council Tax rebate and putting more money into the Household Support Fund. These measures, however, do not go anywhere near far enough to help the very worst off.

That is why the Centre for Social Justice (CSJ) is calling for a special fiscal event to tackle this crisis, and to provide an inflationary shield for those most struggling. In Universal Credit (UC), the UK has a world-class social security system that is data-rich and effectively targeted at the households that need it most. Rebates and discretionary funds represent a step in the wrong direction for tackling poverty. UC links benefits to work, ensuring those that are able can move into and progress within employment. Thus it is a “hand up”, not a hand-out. While the decision to cut the UC taper in the Autumn Budget put £1,000 back into the pockets of 1.9 million households, much of its value will be wiped out by inflation. And it will do nothing to protect those who are not in work. With UC only uprated by 3.1 per cent in April, those who rely on welfare for their income will experience a 7 per cent cut. To prevent this, the Chancellor and Secretary of State for Work and Pensions should implement an emergency in-year uprating, bringing UC into line with inflation to ensure it covers the true cost of living.

There is more the Government can do, as this CSJ report lays out. The Chancellor should seek to remove those parts of each household’s energy bill for which it is directly responsible – the Green levies. These add needlessly to the cost of energy, piling unnecessary taxes on top of the rising price of electricity and gas. Crucially, the Chancellor and Secretary of State should restore work allowances to their pre-2015 level – this would operate as an effective tax cut for those who are in work but are struggling on low incomes. This will also increase incentives to move off UC towards financial independence. Most importantly, the Government should complete the reform of the welfare system, started in 2012, by rolling out Universal Support. This will help those who are furthest from the jobs market into the record number of vacancies in our economy, boosting labour market participation and reducing dependence on benefits. The Government’s response to the inflation crisis should have three goals at its centre: adequate financial support for the worst off, helping those who are able into work, and restoring growth to our economy by reducing the overall burden of taxation. The Government is right to say that work is the best route out of poverty, so as the costs on those who are doing the right thing spiral, now is the time to act.