'The government has failed to address the systemic factors behind the cost-of-living crisis. '

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

For weeks, the UK Chancellor Rishi Sunak insisted that he can’t do more to help people cope with higher energy costs, which in April increased the average household bill from £1,277 to £1,971. Another £800 increase is coming in October. The government’s February 2022 package was inadequate.

Then the Conservative Party received a drubbing at the local elections. On the 25th May, the Sue Gray report published evidence of multiple parties in the Prime Minister’s residence during the Covid-lockdown, which dominated the headlines. Magically, the following day the government came up with a £15bn one-off package to help households.

This package promises £400 of support for every household against a £1,500 increase in the cost of energy. Eight million of the lowest income households may get £650. Disabled people will get £150. Pensioners eligible to receive Winter Fuel Payment will receive a one-off payment of £300.

After months of opposing a windfall tax on oil and gas companies, the government will now levy one at the puny rate of 25% on profits arising after 26 May 2022 i.e. no extra tax on billions of excess profits already made. This is expected to generate £5 billion in its first year, though the period may be extended to 2025.

Supermarkets, banks, water, railway and other companies are profiteering too, but face no windfall tax.

The new package will cost £15bn and together with the support previously announced the total cost would be around £37bn. This would be funded by £10bn additional borrowing, £5bn windfall tax and higher tax revenues. The hike in national insurance is expected to raise £15bn. Frozen personal allowances and income tax thresholds; and higher VAT, fuel duties, stamp duty and inheritance tax due to the effects of inflation could generate £7.5bn. Bumper tax revenues are being collected.

Planet earth is in crisis, but the government is bribing oil and gas companies with new tax reliefs to encourage investment in fossil fuels, not renewables.

Any help, especially for the poorest, is welcome but the government’s proposals are not what they seem. There is no attempt to control energy price induced inflation, a major cause of the crisis.

The Retail Price Index has hit 11.1% and is rising. Poorer households spend more of their budgets on energy and essentials. They face a significantly higher rate of inflation compared to the richer households and need respite from inflation. Over 75% of the inflation is attributable to energy prices which in turn affects the cost of food, transport, other essentials and feeds into the cost-of-living crisis. However, the government has not done anything to control energy prices.

The cost of producing oil, gas and energy has not increased; the selling price has and energy companies are making exorbitant profits. The UK produces around 50% of its electricity from natural gas. Today, natural gas is trading at 140 pence a therm in the wholesale market, about the same as a year ago and about 80% less than a few months ago. Yet domestic energy prices have soared. The high rate of inflation is due to corporate profiteering.

The UK tax burden is the highest for seventy years. The government is handing some of the tax revenues back to the people. These will be used to pay energy bills and in turn companies will continue to profiteer. Some of the excess profits are subject to a windfall tax, but there is no price ‘cap’ or public ownership to check profiteering and related effects on inflation.

The government package fails on other fronts too. Wages, pension and social security benefits will not rise in line with inflation and their real value will plummet. The help to the poor is one-off and does not change the inequitable distribution of income and causes of poverty.

In March 2020, Covid was perceived to pose a threat to corporate profitability and the government increased Universal Credit (UC) by £1,040 a year. By October 2021, that threat receded and the government withdrew the Universal Credit uplift, leaving 4 million families around £4bn a year worse-off. This cut has not been restored. The lower base now for UC means that the future increases will be smaller.

By suspending the triple-lock on the state pension the government deprived pensioners of £5.4bn in 2022-23 and a total of £30.5bn over the next five years. The current median state pension is around 23% of average earrings. The Chancellor has not restored the lost amounts. There is no increase in the state pension. The Winter Fuel Payment of up to £300 a year has remained unchanged since 2011. Instead, the government will make a one-off £300 payment to pensioners. The unchanged base will make future pension increases smaller.

The government has failed to address the systemic factors behind the cost-of-living crisis. These are poverty, low wages, pension and benefits and inequitable distribution of income. The poorest 10% of households pay 47.6% of their income in direct and indirect taxes, compared to 33.5% by the richest 10%. Such regressive policies will continue. The crisis has not been dissolved.

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