Rising prices and planned tax increases will create the biggest squeeze on living standards in Britain for 30 years, the Bank of England warned on Thursday. The Bank said incomes after tax would fall by 2 per cent this year, the biggest drop since records began in 1990, and would continue to fall next year.
The Bank's forecast came alongside an interest rate rise to 0.5 per cent on the same day that Britain's energy regulator Ofgem announced an increase in the energy price cap. The price cap will rise by 54 per cent from April, adding almost £700 (€832) to annual household energy bills.
Chancellor of the exchequer Rishi Sunak announced measures to alleviate the impact on the cost of living, including a council tax rebate of £150 for most households. Domestic energy customers will receive a £200 discount on their bills from October and they will repay it in annual instalments of £40 over five years.
The discount will be funded by £5.5 billion in loans from the government to energy companies and the council tax rebate will cost £3.5 billion in grants to local authorities. Speaking in the House of Commons, Mr Sunak rejected calls to abolish VAT on energy bills, a move he said would benefit wealthier households.
‘Generous supports’
“There would be no guarantee that suppliers would pass on the discounts to all customers, and we should be honest with ourselves: this would become a permanent government subsidy on everyone’s bills, a permanent subsidy worth £2.5 billion every year, at a time when we are trying to rebuild the public finances. Instead, our plan allows us to provide more generous support, faster, for those who need it most, providing 28 million households with at least £200, and the vast majority receiving £350. It is fair, it is targeted, it is proportionate: it is the right way to help people with a spike in energy costs,” he said.
Labour’s shadow chancellor of the exchequer Rachel Reeves said that despite Mr Sunak’s actions, households would still be paying hundreds of pounds more for energy from April. And she said the loan scheme to energy companies was creating problems for the future.
“High prices as far as the eye can see – this year, next year and the year after that, give with one hand now and take it all back later,” she said.
“By lending billions of pounds to energy companies, the chancellor is gambling that prices are going to fall – but they could go up further in October. What then? Billions more loaded on to people’s bills?”
Mr Sunak has ruled out postponing the introduction in April of a national insurance increase to fund reduction of National Health Service waiting lists and to establish a new social care system. The Bank of England said it expects inflation, running at 5.4 per cent, to peak at 7.25 per cent in April.
European Central Bank president Christine Lagarde said on Thursday that Brexit’s impact on Britain’s labour market was driving up inflation.
"I don't want to take a political stand, but I think that there was a lot of non-UK labour force that eventually had to leave the United Kingdom, which has not been totally replaced," she said.
“The shortage of workers is actually having a bearing on the forces of the labour market in the UK.”
