My Lords, the Queen’s Speech provides little guidance as to how the Government intend to tackle the three big economic challenges that they face: in the short term, managing the immediate crisis of inflation and alleviating its cost of living impact on the most vulnerable in our community; in the medium term, promoting economic growth and ensuring that its benefits are shared across all strata and regions; and, for the longer term, but to be addressed urgently and started immediately, tackling the carbon crisis and the global threat of costly and disruptive climate change.
Looking first at inflation and the cost of living crisis, consumer price index inflation is currently running at around 7%, as measured by the increase in consumer prices over the past 12 months. The Bank of England expects it to rise to at least 10% later in the year, before falling back sharply in 2023 and returning to around 2% in 2024. The main factors pushing prices up have initially been global supply constraints during a period of economic recovery associated with the easing of Covid restrictions, with global oil and gas prices growing particularly strongly—plus, in recent months, the war in Ukraine putting further upward pressure on global energy and food prices. As well as these global factors, UK prices for food and other imports have been affected by a post-Brexit adjustment process.
However, the causes of rising inflation have been mostly global and not specifically and largely confined to the UK. This does not mean that inflation does not matter, but it does mean that the proper course for the Government’s domestic policies is to avoid the knee-jerk response of cutting demand, thereby further damaging
household incomes, and instead alleviating so far as possible the cost of living impact on those most immediately and critically affected.
This can best be done by reversing at least some of the swingeing cuts that there have been to the real value of benefits to lower-income households. If the Government are unwilling to restore the £1,000-a-year uplift to benefits that they judged as essential when Covid struck—not to mention the real-terms cuts due to the benefits freeze in the preceding years—the absolute minimum they should do now is to bring forward, during this year of rapidly growing inflation, the inflation protection supposedly built into the benefits system. Under present rules, benefits rise each March by the rate of inflation recorded six months earlier. At a time when inflation is increasing rapidly, this imposes swingeing real cuts on those most vulnerable to price inflation. This year, during which inflation is expected to go above 10%, benefits rose by a mere 3% in March, meaning an immediate real cut by 3% or 4% up to that date, which is expected to rise to at least a 7% cut later in the year.
Households simply cannot afford to wait until March 2023 for help with meeting ever-increasing heating and food bills. They need support immediately to meet the current and expected cost of living increases. Moreover, the cost of such measures would be largely temporary as, in principle, this amounts to paying inflation uplifts in a more timely manner and could be met by a similarly time-limited windfall tax on North Sea oil and gas companies—I am sorry, I have lost the second half of this.