The independent Office for Budget Responsibility set out the official inflation forecast in its March economic and fiscal outlook. It expected CPI inflation to peak at 8.7% in the fourth quarter of this year, before falling back towards the 2% target. We understand how rising costs are impacting the costs of living. The Government are providing support worth over £22 billion this year to help families with these pressures.
My Lords, we know that there is worse to come, but do we not need decision and action now? The cost of living crisis is with us now, hitting the poorest the hardest, with one in five households already in fuel poverty and 2 million adults who cannot afford to eat every day. Does the noble Baroness understand that bromides do not warm or feed anyone? Procrastination is inexcusable and it is insufferable that action is delayed because of bickering between No. 10 and No. 11. Will the Government immediately increase benefits in line with actual inflation?
The Government are putting in place support now. It is worth remembering that the household support fund is open, it is ready, it is there for people to access. It is also worth remembering that national insurance thresholds will increase in July, putting more money back into the pockets of the lowest-income households. It is also worth remembering that the rebate on people’s energy bills, worth £200, is yet to come—it will come in October. We are keeping the situation under review, we are standing ready to do more, but more action is already committed to by the Government that will flow through to people’s pockets over the coming weeks and months.
My Lords, in my role as president of the CBI, I remember asking the Chancellor in February 2021 whether he was worried about inflation. Since then, we have had galloping inflation, and businesses and consumers are suffering hugely as the noble Lord, Lord Howarth, said. Are the Government concerned that we are now entering stagflation, and should not they be doing all they can to incentivise investment for growth, for example, by reducing the highest tax burden in 71 years, by bringing back a temporary cut in VAT of 12.5% and by having a permanent 100% tax reduction on capital investment by business?
My Lords, I absolutely agree with the noble Lord on supporting investment and putting our efforts towards growing the economy. He will know that we have cut business rates by 50% for eligible retail, hospitality and leisure businesses this year. We have increased the employment allowance from £4,000 to £5,000, cutting the cost of employment for 495,000 small businesses, and we have increased the annual investment allowance to £1 million. I know that there is more to do, but I agree with the sentiment in terms of increasing investment in our economy.
Do the Government recognise that those on low incomes are experiencing inflation much closer to 13% rather than CPI? Will they step away from the practice of masking the true damage by constantly using the CPI number and therefore recognise the urgency, for example, of increasing universal credit by at least £25, as has been recommended by civil society groups?
My Lords, the Government recognise that inflation can have a differential impact. The ONS suspended its publication of inflation by income level during the pandemic due to trouble accessing the data. That has now been reinstated. The Government also recognise that differential impact in the support they provide to people; for example, extending the warm homes discount, increasing the work allowance on universal credit, and, as I said before, having the household support fund in place.
My Lords, I have seen at first hand from touring every part of the three counties in the Diocese of Oxford the rise in the take-up of food banks in recent weeks. I pay tribute to all those who work and volunteer in them. I have heard heartbreaking stories of those who need to use them. The Government’s response to the Covid pandemic was remarkable in its creativity and urgency, helping the poorest. Will we see now a windfall tax? Will we see more targeted support for the poorest in the communities as an urgent matter?
My Lords, we do not believe that windfall taxes are simple or easy, but we are also pragmatic, and we want to see energy companies which have made extraordinary profits at a time of elevated prices investing those profits back into British jobs and growth. If that does not happen, no option is off the table. When it comes to further help for families across the country that are facing real difficulty, the Government are looking very carefully and stand ready to do more.
My Lords, is it not time to go to the roots of this terrible energy price and inflation problem? Those roots are largely international; at this moment, there is ample gas around the world and ample oil capacity to offset Russian exports and bring prices very sharply down. Should we not make it a diplomatic and foreign policy priority to bring pressure on those who could increase capacity quickly to do so, and to do so in the interest of the consumer, prices and indeed the entire European situation—and the Ukraine situation as well?
My noble friend makes a good point. Of course, the Government have published their energy security strategy, which looks at the number of those issues. The point about international co-operation can also be very well applied to food security and food exports; I know that the Prime Minister and the Foreign Secretary have had conversations with their counterparts in recent weeks to look at what more we can do to ensure food exports, for example from Ukraine.
My Lords, with regard to the differential impact of inflation, the Resolution Foundation and the Institute for Fiscal Studies calculate a 10% inflation rate for the bottom 10th of the population, many of whom, in and out of work, rely on social security, which has gone up by only 3.1%. The discretionary household support fund is no answer. Does not the differential impact of inflation strengthen the case made by noble Lords across the House and across the political spectrum for a further increase in benefits as soon as possible?
My Lords, I acknowledge the point about the differential impact of inflation. That has not always been the case, but according to the IFS’s report it was driven largely by the increase to the energy price cap and rising energy prices. That is where we have focused our support, through the warm homes discount and the £150 council tax rebate that is coming through to people now. In addition, as I said, there is forthcoming support, with a further £200 off people’s energy bills in October.
My Lords, the Minister’s change of narrative on an energy windfall tax is intriguing, but would she agree that the Government have already received a windfall from increased receipts from VAT and from petroleum duty? Given that much money—perhaps the Minister can tell your Lordships’ House how much extra money has been received—there is a pot available to help the least able. Will she agree that this money should be used now to help the poorest people in this country?
My Lords, with regard to a windfall tax, my comments only echoed those of the Chancellor and those of the Prime Minister. On the additional revenue that has come in through VAT receipts and other areas, the noble Lord is right, and we have used additional finance to provide extra support to people that is worth over £22 billion. That includes new help that will flow through to people’s pockets—not yet, but in the future. For example, once the uprating in the thresholds for national insurance is in place in July, people will have more money in their pay packets as a result.
My Lords, I have great sympathy with the Minister; we are all asking her to be the Chancellor and she is not. She might do a better job, but she is not yet the Chancellor. I will ask her a question to which she can make a commitment. There is a consensus in this House that action is needed now. Can she personally make sure that that consensus is conveyed to the Chancellor?
“Inflation is always and everywhere a monetary phenomenon”, as Milton Friedman pointed out. We printed a lot of money during the lockdown without producing any real-world goods. If this was really about the war in Ukraine, how come Japan and Switzerland have inflation of less than 3%? Will my noble friend the Minister urge the Bank of England to reduce the ultimate cause of the problem, which is printing lots of money so that people could stay at home producing fewer things? We will not restore fiscal sanity without sound money.
I am afraid that I am going to have to disappoint my noble friend. We cherish the operational independence of the Bank of England, and that applies to QE as well as to interest rate-setting.