Rishi Sunak’s cost of living gamble

4 February 2022

1:31 AM

4 February 2022

1:31 AM

The Chancellor is lending £200 this year to anyone who pays an energy bill in their own name. That’s 28 million people at an upfront cost to the government of £5.5 billion.

The £5.5 billion will go directly to the companies this year, and will be knocked off bills from October. It will count as public spending.

However, we will all have to repay that £200, in five equal annual instalments of £40 from 2023. Or to put it another way, our energy bills will be £40 a year higher than would otherwise have been the case until 2028.

In a way, Rishi Sunak has given most of us an interest-free loan of £200. And we’ll only be able to dodge repayments if we stop buying energy in the UK.

So the Chancellor seems to be taking a punt that this year’s energy price surge will be temporary. If he’s wrong, he’ll simply be worsening a future cost of living squeeze.

There is a second part to his bailout, benefitting – he says – around 80 per cent of households, those in council tax bands A to D. These people will receive a one-off rebate this year of £150.

This will cost £3.6 billion and is supposed to help those on lower incomes.

But there are a number of potential flaws.

The first is that millions of the poorest people rent rather than own. And their names may not be on the council tax bill. So many of the £150 rebates will go to landlords, and if those landlords are unscrupulous they may trouser it and not pass it on.

This is a particular problem for more vulnerable people, less confident about standing up to rogue landlords.

The Treasury said to me that 95 per cent of renters are in band A to D properties, so they are hopeful these renters will see the subsidy. But this is a hope, not a guarantee.

There is one final point, perhaps more important than all the others.

Of the circa £700 increase in bills, most people will enjoy a temporary discount of £200, leaving a painful £500 still to pay.

And those on lower incomes – four fifths of households – will see this year’s bill halved, but that will still mean annual bills rising from just under £1,300 to roughly £1,650.

Hundreds of thousands will be pushed into fuel poverty, despite the Treasury’s subsidies, and will have to make painful choices about whether to heat their homes or buy food and clothes for themselves and their dependents.

The package of support from Sunak and Boris Johnson reduces the squeeze on living standards, but that squeeze will still be greater for most households than anything they’ve experienced in living memory.

Oh, and if they are unlucky enough to have a substantial mortgage or other debts, today’s 0.25 per cent in the Bank of England’s benchmark interest rate – Bank Rate – will be another potentially unaffordable increase in the cost of living.

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