The UK’s cost-of-living support won’t protect the poorest – here’s what the government should be doing instead:

British households took an unprecedented blow to their standard of living in 2022. Home energy costs have more than doubled and are at risk of tripling, gasoline prices have risen by more than half since the beginning of last year and general price inflation is approaching double digits.

We’ve seen a lot of comparisons with the 1970s lately, but two things can make today’s situation worse. Inflation has not built up gradually, but will go from zero to double digits in less than 18 months. This sudden acceleration has left people’s incomes far behind. Second, the course of this crisis has been very unpredictable, with forecasts constantly being revised upwards. As a result, there is a risk that a response may already be obsolete by the time it is implemented.

UK inflation, 2019-2022

Line chart with CPI change since 2019
Change in the UK Consumer Price Index (CPI) between June 2019 and June 2022.
Bureau of National Statistics

This crisis is unlikely to be resolved any time soon, especially as global energy costs continue to have a major and highly unpredictable impact on people’s finances. To properly address this, the government must develop a clear policy on how to respond to a constantly changing situation.

I experienced this volatility as an analyst when I responded to a request from former Prime Minister and Chancellor Gordon Brown to assess the effectiveness of the government bailout package announced in May. It’s still in the process of being implemented, but it’s giving a seemingly generous £1,200 a year to the poorest of families.

As my resulting report shows, even at the time of its announcement, the package was insufficient to compensate low-income earners. These households have suffered the combined blows of the £1,000 a year cut in universal credits in October last year, the rise in benefits by just 3% in April when inflation was 9%, and the £1,000 increase in fuel bills. 800 that last May for this October. Under these circumstances, a family with two children would be worse off a total of around £1,600, a significant shortfall for those already struggling to make ends meet.

Fast developing photo

As I worked on the report, the forecasts affecting the numbers changed at an alarming rate. Food inflation has risen and domestic energy bills are now expected to rise by £1,200 a year, up from the £800 forecast last May. Prices also seem to rise faster for the worst, but how much is hard to measure because so much depends on individuals’ spending habits.

My report was supposed to contain warnings for all these moving parts. But these uncertainties don’t just frustrate the neatness of an academic’s sums — more importantly, they affect policymakers’ ability to make good judgments about how to respond.

The government’s response so far has led to a series of lump sum payments. This will certainly reduce the problem, but it will not prevent disaster this winter. It’s also an inefficient way to distribute this money: sending checks from 8 million households for a flat rate of £650 is administratively simple, but it gives the same amount to a family of four as it does to a single person.

In a recent opinion piece published in the British newspaper Observer, which is based on research by myself and others, Brown warned that a significant part of the British population will still be cold and hungry this winter.

Fortunately, a consensus seems to be growing that more action is needed. Even the hopeful Liz Truss of the Conservative Party leadership has recently reverted to her “no more handouts” principle. We need to match the size of the need instead of simply taking modest measures, such as abolishing the 5% VAT on energy bills.

This will only prevent a small part of the problem, as bills will rise 40% to 60% in October alone. But while everyone can agree that serious help is needed, agreeing on how much is another matter.

Conservative party hustings sign in support of Liz Truss and Rishi Sunak
Both candidates for the next Conservative Party leader have vowed to tackle the cost of living crisis, but more clarity on the principles is needed.
Andy Rain / EPA-EFE

Provide more clarity

While no calculation can really definitively answer this question, the most important thing politicians can do now is at least clarify the principles they will apply in future decisions about how much aid to give. This is a crisis that will not go away anytime soon and constant ad hoc responses will not help. We need a clear policy on how to respond to a constantly changing situation.

My research leads me to the conclusion that there are two main principles that policymakers need to consider, one for the shorter and one for the longer term.

In the short term, the government has to show us that the worst don’t get any worse. For more than 60 years, the post-war welfare state automatically increased benefits, at least through inflation. This ended with a four-year freeze on benefits starting in 2015.

The rise in inflation has since recovered, but using last September’s inflation to raise incomes in April creates a decoupling that has proved disastrous this year. Universal Credit has computer systems that can make increases in real time much more responsive and a mid-year top-up, particularly in October, is certainly warranted.

The second long-term principle should be an improvement in the level of safety net that the UK provides. For example, people on benefits do not have to live so close to the edge that a crisis like this threatens to push them into poverty. This requires sustained political will.

The national emergency caused by the current threat to living standards could help create the political determination to permanently improve social protection in this way. If so, something positive could come out of the current cost of living crisis.

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