Resolution Foundation analysts estimate that a 9.5% increase in the welfare bill, based on the inflation rate forecast for September, will add £ 15bn to the chancellor’s spending next year, a leap forward. as big as today’s big paper, and that will increase price pressures across the economy.
Paul Dales of Capital Economics says the additional debt and spending “will add to the already broad inflationary pressure”, adding that “there is still a lot of potential for recession” despite the additional aid. This is the scale of the jump in energy prices.
Kallum Pickering, an economist at Berenberg Bank, called the chancellor’s policy “wrong”, warning that he might not be able to stop handing out cash to help with inflation, although doing so would raise prices even further.
“Now that the government is committed to keeping energy costs affordable with direct tax support, it will be difficult to reverse it, especially if it fuels even higher inflation in the future,” he says.
If, as a result, the Bank of England has to raise interest rates faster, Pickering adds, it runs the risk of “triggering a recession”. Unemployment would be much worse for living standards than high energy prices, that’s for sure. “
JP Morgan’s Allan Monks expects the Monetary Policy Committee (MPC) to add an additional interest rate hike this year, bringing the base rate from 1% now to 2% by the end of this year and 2.75% in August 2023.
“Insufficient” extraordinary tax
Meanwhile, the move is bad for public finances.
Sandra Horsfield of Investec says the extraordinary tax was “by no means enough” to cover the £ 37bn Sunak has pledged to deal with the cost-of-living crisis in the UK United.
“The rest seems to come from a higher loan and the use of part of the‘ war chest ’accumulated in part from a past loan that has been successively revised downwards,” he says.
“Improving public finances has ceased to be a priority given the magnitude of the tightening of family budgets.”
However, with the additional puncture of another tax hike, it also runs the risk of causing pain to the economy.
Jagjit Chadha, director of the National Institute for Economic and Social Research, says: “Once again, they offer us the spectacle of politics on the path to good economics.
“When it comes to taxes, it’s worth remembering that if we act quickly, we may regret it.
“Taxes can and should come later, support should come now.”
In the case of individuals, the Chancellor’s cost-of-living support package will benefit society unequally. It will offset less than one-fifth of the cost increases for middle-class families this year.
Sunak announced a £ 200 discount on household energy bills this fall, which will now double to £ 400. This is in addition to the £ 150 municipal tax rebate granted to 80% of households in England in council A to D tax brackets.
Although bills are generally rising, however, Sunak’s support runs the risk of failing to protect middle-class consumers who will not receive measures such as a £ 650 welfare payment for resource-benefit households.
Middle-income households are facing bill increases of around £ 4,000 this year, according to Telegraph analysis, with the state payment accounting for only 14% of that total.
Energy bills rose by an average of £ 693 in April and will rise further this October when the energy price cap rises to £ 2,800, 42% more than current levels. That means the average household will pay an additional £ 1,523 a year compared to last winter, regulator Ofgem has warned.