May 17, 2022

What options does the government have to ease cost of living crisis?

The cost of living has become one of the major political focuses as bills rise and inflation soars, with households feeling the squeeze.

Average energy bills have risen by nearly £700 to just under £2,000 a year in April, and the Bank of England is expecting another annual rise of £830 in October.

The government has said its priority is to “help ease the cost of living” and has introduced some measures already, but critics – including some Conservative MPs – say they could be doing more.

Sky News looks at some of the options that have been suggested to the government.

Deputy Political Editor Sam Coates has provided his analysis on each measure in grey boxes.

Windfall Tax

Labour has called for a windfall tax on oil and gas companies’ excess profits to give households some relief on their energy bills.

It would involve a one-off levy on the companies’ profits, which have been boosted by high energy prices, with BP admitting it has “more cash than we know what to do with”.

So far, Chancellor Rishi Sunak has resisted the calls but did say “no option is off the table”.

Some Conservative MPs are urging the chancellor to introduce the tax.

But, Boris Johnson said he is reluctant to introduce a windfall tax as it is better for companies to invest the money into renewable energy.

He is also concerned it could deter investment in the North Sea as the UK tries to become more self-sufficient.

Oil and gas companies also already pay higher corporation tax than most other companies – 30% versus 19%.

Sam says…

This is creeping up the government agenda despite the historic Tory antipathy to taking away private sector profits. Cabinet ministers like Kwasi Kwarteng are still opposing in public, so there’s some way to go if it’s going to happen.

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Scrapping the National Insurance rise

On 6 April, National Insurance contributions were increased by 1.25 percentage points to 13.25%.

It means that somebody earning £27,000, for example, is now paying £200 more in National Insurance annually.

Labour has called for the Conservatives to reverse the hike as families struggle with the cost of living, and said it would replace the rise with a windfall tax on oil and gas companies.

Employers groups have also criticised the increase, with the British Chambers of Commerce saying it is another cost pressure “at a time when they can ill afford to bear it”.

The government has resisted calls to reverse the rise, with Mr Johnson saying the rise will help the NHS grapple with the pandemic backlog.

Sam says…

A huge swathe of Tory MPs want this tax rise scrapped but Boris Johnson wants it to pay for social care and Rishi Sunak wants it to balance the books after that new spending commitment.

Lowering income tax

The chancellor said he would cut the basic rate of income tax from 20 to 19 pence in the pound before spring 2024.

But that has yet to happen as Mr Sunak said in March it would “clearly be irresponsible to meet this ambition this year” due to the economic situation.

However, Paul Johnson, the director of the Institute for Fiscal Studies (IFS), said raising the National Insurance rate while cutting income tax “drives a further wedge between taxation of unearned income and earned income”.

Sam says…

Rishi Sunak has already promised to cut income tax before the next election. However, this doesn’t help the lowest income brackets who are below the threshold and don’t pay income tax or are on fixed incomes like pensioners.

Chancellor of the Exchequer Rishi Sunak arrives to attend a regional cabinet meeting at Middleport Pottery in Stoke-on-Trent. Picture date: Thursday May 12, 2022.
Image: Rishi Sunak said ‘all options are on the table’

Increasing universal credit

Labour has been calling for some time for the government to reinstate the £20-a-week uplift in Universal Credit introduced at the start of the pandemic to help those on low incomes.

Conservative peer and Asda chairman Stuart Rose joined other prominent business figures, including Tesco chairman John Allan, in calling for the government to help struggling families.

Lord Rose said those on lower incomes are a particular worry and believes direct, targeted help through welfare was the best approach.

Mr Sunak said the Department for Work and Pensions computer system prevented him from raising benefits at the spring statement as it would only allow one uplift a year.

Sam says…

The best targeted way to help those most in need but it runs counter to Boris Johnson’s rhetoric on increasing employment and getting better-paid jobs being ultimately the way out of the cost of living crisis.

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Regulatory changes

Boris Johnson tasked his cabinet with coming up with ways to ease the strain on people’s finances without using taxpayers’ money.

Ministers are said to be considering the options but nothing is concrete yet.

They included:

• Allowing motorists to get MOT tests every other year rather than annually

• Loosening legal requirements dictating the number of staff members required for the number of children in childcare settings to allow more children per adult

• Helping farmers with soaring fertiliser costs in the hopes of bringing down food and drink prices

• Raising awareness of discounted broadband offers for low-income households, which are available to 4.2 million Universal Credit households, but less than 2% claim them.

Sam says…

All such regulations – like on annual MOTs and child-staff nursery ratios – were introduced for a reason so ministers would be on the hook politically if scrapping these caused problems and endangered lives.

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