Economy Update

Eleanor Laing Excerpts

Thursday 26th May 2022 Commons Chamber

[The Chancellor of the Exchequer (Rishi Sunak)]

The high inflation that we are experiencing now is causing acute distress to the people of this country. I know that they are worried. I know that people are struggling. I want to explain what is happening, why it is happening, and what we propose to do about it.

I trust the British people, and I know they understand that no Government can solve every problem, particularly the complex and global challenge of inflation, but this Government will never stop trying to help people, to fix problems where we can and to do what is right, as we did throughout the pandemic. We need to make sure that those for whom the struggle is too hard, and for whom the risks are too great, are supported. This Government will not sit idly by while there is a risk that some in our country might be set so far back that they might never recover. That is simply unacceptable, and we will never allow it to happen.

I want to reassure everybody that we will get through this. We have the tools and the determination we need to combat and reduce inflation. We will make sure that the most vulnerable and least well off get the support they need at this time of difficulty, and we will also turn this moment of difficulty into a springboard for economic renewal and growth, with more jobs, higher skills and greater investment: our plan for a stronger economy.

Before I turn to the details of our plan, let me put into context for the House the challenge we face. This country is now experiencing the highest rate of inflation we have seen for 40 years. The Bank of England expects inflation to average around 9% this year. Our exposure to global shocks continues to explain most of the inflation above the 2% target. Supply chain disruption as the world reopened from covid, combined with Russia’s invasion of Ukraine and potentially exacerbated by recent lockdowns in China, are all contributing to significant price increases for goods and energy.

However, over the course of the year, the situation has evolved and become more serious. There are areas of particular concern. Even excluding energy and food, core inflation has become broader-based and elevated. Of the basket of goods and services we use to measure inflation, a record proportion is seeing above-average price increases. Also, we are acutely exposed to the European energy price shock and, like the US, we have a tight labour market. Make no mistake, the lowest unemployment in almost 50 years, just months after averting a jobs crisis during the pandemic, is good news, but combined with the shock to European energy prices, it does contribute to the UK’s relatively high rate of inflation.

Lastly, as the Bank has noted, longer-term inflation expectations have risen above their historical averages by more than they are doing in the US and Europe. We cannot and must not allow short-term inflationary pressures to lead people to expect that high inflation will continue over the long term. We can get inflation under control. It is not some abstract force outside our grasp. It may take time, but we have the tools we need and the resolve it will take to reduce inflation. We have three specific tools available to combat and reduce inflation, and we are using them all: independent monetary policy, fiscal responsibility and supply-side activism.

First, our primary tool is a strong independent monetary policy. Since control of monetary policy was taken out of the hands of politicians 25 years ago, inflation has averaged precisely 2%. It is right that the Bank of England is independent, and I know that the Governor and his team will take decisive action to get inflation back on target and ensure that inflation expectations remain firmly anchored.

Secondly, we need responsible fiscal policy. That means providing fiscal support where required but not making the situation unnecessarily worse, causing inflation, interest and mortgage rates to go up further than they otherwise would. Excessively adding fiscal stimulus into a supply-constrained economy, especially one in which households and businesses have built up over £300 billion of excess savings, risks being counterproductive and increasing inflationary pressures. In other words, fiscal support should be timely, temporary and targeted. Timely because we need to help people when the shock is at its worst, targeted because unconstrained stimulus will make the problem worse, and temporary because if we do not meet our fiscal rules and ensure the public finances are resilient in the longer run, we create even greater risks on inflation, interest rates and the trend rate of economic growth.

Thirdly, we are taking an activist approach to supply-side reforms. This will increase our productive capacity, ease inflationary pressures and raise our long-term growth potential. The Prime Minister’s energy security strategy will reduce bills over time by increasing energy supply and improving energy efficiency. The Work and Pensions Secretary is moving half a million jobseekers off welfare and into work and doing more to support older people back into the jobs market. The Home Secretary is making our visa regime for high-skilled migrants one of the most competitive in the world, and in the autumn we will bring forward tax cuts and reforms to encourage businesses to invest more, train more and innovate more—the path to higher growth. Independent monetary policy, fiscal response ability and supply-side reform—the country should have confidence that using these three tools, we will combat inflation and reduce it over time.

But of course, we know that households are being hit hard right now, so today we will provide significant support to the British people. As I have said, a critical part of how we are dealing with inflation is responsible fiscal policy. What this means in practical terms is that as we support people more, we need to think about the fairest way to fund as much of that cost as possible. The oil and gas sector is making extraordinary profits, not as the result of recent changes to risk taking or innovation or efficiency, but as the result of surging global commodity prices, driven in part by Russia’s war. For that reason, I am sympathetic to the argument to tax those profits fairly, but—[Interruption.]

[Madam Deputy Speaker (Dame Eleanor Laing)]

Order. A bit of gentle banter is fine, but when it gets to the stage that nobody can hear what the Chancellor is saying, it is counterproductive. Quieter banter, please.

[Rishi Sunak]

But, as ever, there is a sensible middle ground. We should not be ideological about this; we should be pragmatic. It is possible to both tax extraordinary profits fairly and incentivise investment. So, like previous Governments, including Conservative ones, we will introduce a temporary targeted energy profits levy— [Interruption.] But we have built into the new levy— [Interruption.] We have built into the new levy a new investment allowance similar to the super deduction, which means that companies will have a new and significant incentive to reinvest their profits.

The new levy will be charged on the profits of oil and gas companies at a rate of 25%. It will be temporary, and when oil and gas prices return to historically more normal levels, the levy will be phased out, with a sunset clause written into the legislation. And crucially, with our new investment allowance, we are nearly doubling the overall investment relief for oil and gas companies. That means that for every pound a company invests, it will get back 90% in tax relief. So the more a company invests, the less tax it will pay.

We understand that certain parts of the electricity generation sector are also making extraordinary profits. The reason for this is the way our market works. The price our electricity generators are paid is linked not to the costs they incur in providing that electricity but rather to the price of natural gas, which is extraordinarily high right now. Other countries such as France, Italy, Spain and Greece have already taken measures to correct this. As set out in the energy security strategy, we are consulting with the power generation sector and investors to drive forward energy market reforms and ensure that the price paid for electricity is more reflective of the costs of production.

These reforms will take time to implement, so in the meantime, we are urgently evaluating the scale of these extraordinary profits and the appropriate steps to take. So our energy profits levy will encourage investment, not deter it. It will raise around £5 billion of revenue over the next year so that we can help families with the cost of living, and it avoids having to increase our debt burden further. There is nothing noble in burdening future generations with ever more debt today because the politicians of the day were too weak to make the tough decisions.

I know the whole House will agree that we have a responsibility to help those who, through no fault of their own, are paying the highest price for the inflation we face. To help with the cost of living, we are going to provide significant targeted support to millions of the most vulnerable people in our society: those on the lowest incomes, pensioners and disabled people.

First, on people on the lowest incomes, over 8 million households already have incomes low enough for the state to be supporting their cost of living through the welfare system. They could be temporarily unemployed and looking for work; they could be unable to work because of long-term sickness or disability; or they could be on low pay and using benefits to top up their wages. Right now, they face incredibly difficult choices. I can announce today that we will send directly to around 8 million of the lowest-income households a one-off cost of living payment of £650. That support is worth over £5 billion and will give vulnerable people certainty that we are standing by them at this challenging time. The Department for Work and Pensions will make the payment in two lump sums, the first from July and the second in the autumn, with payments from Her Majesty’s Revenue and Customs for those on tax credits following shortly after. There is no need for people to fill out complicated forms or bureaucracy, as we will send the payments straight to their bank account.

Our policy will benefit over 8 million households in receipt of means-tested benefits from July. Uprating in that timeframe could only be done for those on universal credit, and our policy will provide a larger average payment this year of £650, whereas uprating the same benefits by 9% would be worth only £530 on average.

There are two further groups who will need extra targeted support. Many pensioners are disproportionately impacted by higher energy costs. They cannot always increase their income through work and, because they spend more time at home and are more vulnerable, they often need to keep the heating on for longer. We estimate that many people who are eligible for pension credit are not currently claiming it, which means many vulnerable pensioners will not be receiving means-tested benefits. I can announce today that, from the autumn, we will send over 8 million pensioner households that receive the winter fuel payment an extra one-off pensioner cost of living payment of £300.

Disabled people also face extra costs in their day-to-day lives; for example, they may have energy-intensive equipment around their home or workplace. To help the 6 million people who receive non-means-tested disability benefits, we will send them, from September, an extra one-off disability cost of living payment worth £150. Many disabled people will also receive the payment of £650 I have already announced, taking their total cost of living payment to £800.

I can reassure the House that next year, subject to the review by the Secretary of State for Work and Pensions, benefits will be uprated by this September’s consumer prices index, which on the current forecast is likely to be significantly higher than the forecast inflation rate for next year. Similarly, the triple lock will apply to the state pension.

Of course we recognise the risk that, with any policy, there may be small numbers of people who fall between the cracks. For example, it is not possible right now for the DWP or HMRC to identify people on housing benefit who are not also claiming other benefits. To support them and others, we will extend the household support fund delivered by local authorities by £0.5 billion from October.

This is a significant set of interventions to support the most vulnerable in our country. We will legislate to deliver this support on the same terms in every part of the United Kingdom, including Northern Ireland. Taken together, our direct cash payments will help one third of all UK households with cost of living support worth £9 billion.

We are meeting our responsibility to provide the most help to those on the lowest incomes. I believe that is fair, and I am confident that the House will agree, but many other families who do not require state support in normal times are also facing challenging times. Is it fair to leave them unsupported? The answer must surely be no.

Although it is impossible for the Government to solve every problem, we can and will ease the burden as we help the entire country through the worst of this crisis. We will provide more support with the rising cost of energy, and that support will be universal. Earlier this year, we announced £9 billion to help with the cost of energy, including a council tax rebate of £150 for tens of millions of households.

We planned to provide all households with £200 off their energy bills from October, with the cost repaid over the following five years. Since then, the outlook for energy prices has changed. I have heard people’s concerns about the impact of these repayments on future bills, so I have decided that the repayments will be cancelled. For the avoidance of doubt, this support is now unambiguously a grant. Furthermore, we have decided that the £200 of support for household energy bills will be doubled to £400 for everyone. We are on the side of hard-working families with £6 billion of financial support.

To summarise, our strategy is to combat and reduce inflation over time through independent monetary policy, fiscal responsibility and supply-side activism. We are raising emergency funds to help millions of the most vulnerable families who are struggling right now, and all households will benefit from £400 of universal support for energy bills, with not a penny to repay.

In total, the measures I have announced today provide support worth £15 billion. Combined with the plans we have already announced, we are supporting families with the cost of living through £37 billion or 1.5% of GDP. That is more than or similar to the support in countries such as France, Germany, Japan and Italy. I am proud to say that around three quarters of that total support will go to vulnerable households.

As a result of the measures announced today and the action we have already taken this year, the vast majority of households will receive £550, pensioners will receive £850 and almost all of the 8 million most vulnerable households in the country will, in total, receive support of £1,200.

Let me put that in context. The House will have noted the news from Ofgem earlier this week that it expects the energy price cap to rise to £2,800 in October. That implies an average increase in people’s bills this year of just under £1,200, which is the same amount as our policies will provide for the most vulnerable people this year.

I know there are other pressures. I am not trying to claim that we have solved the entire problem for everyone—no Government could—but I hope that when people hear of the significant steps we are taking, and the millions we are helping, they will feel some of the burden eased and some of the pressures lifted. They will know that this Government are standing by them.

Supporting people with the cost of living is only one part of our plan for a stronger economy—a plan that is: creating more jobs; cutting taxes on working people; reducing our borrowing and debt; driving businesses to invest and innovate more; unleashing a skills revolution; seizing the benefits of Brexit; and levelling-up growth in all parts of the United Kingdom. The British people can trust this Government because we have a plan for a stronger economy, and I commend it to this House.

[Madam Deputy Speaker (Dame Eleanor Laing)]

I call the shadow Chancellor, Rachel Reeves.

[Rachel Reeves (Leeds West) (Lab)]

After today’s announcement, let there be no doubt about who is winning the battle of ideas in Britain—it is the Labour party. Today, it feels as though the Chancellor has finally realised the problems the country is facing. We first called for a windfall tax on oil and gas producers nearly five months ago, to help struggling families and pensioners. Today, he has announced that policy but he dare not say the words; it is a policy that dare not speak its name for this Chancellor. It was also Labour that first highlighted the unfairness of this Government’s buy now, pay later compulsory loan scheme. It should not have taken a rocket scientist to work out that this would not cut it, and we pointed that out at the time, but that is the mark of this Klarna Chancellor: announce now, ditch later. Here he is, once again, the Treasury’s one-man rebuttal unit, the Chancellor himself.

For months, it has been clear that more was necessary to help people bring their bills down, so what took this Government so long? Every day that they have refused to act, we have had £53 million added to Britain’s household bills during this cost of living crisis. This Government’s dither and delay has cost our country dearly. Labour welcomes the fact that the Government are finally acting on our calls to introduce a windfall tax, and it is good to see the SNP U-turning today and saying that they, too, are in favour of a windfall tax on oil and gas profits—well done to the SNP.

It was a painful journey to get the Government to this point. First, Conservative Ministers said that oil and gas producers were “struggling”—that was the Education Secretary, I think—but then the BP chief executive said that the energy crisis was a “cash machine” for his business, so the Government moved to the second defence. Ministers claimed that a windfall tax would put off vital investments, but the industry said that it would not even change its plans. Then the Government said that a windfall tax would be “un-Conservative”. It is so un-Conservative that Margaret Thatcher, George Osborne and now this Government are doing exactly that. Finally, the Chancellor said that it would be “silly” to offer help now, given that he did not know the full scale of the challenge. What nonsense! It should not take half a million pounds of publicly funded focus groups for the Chancellor to realise that helping families and pensioners is exactly the right thing to do.

Every day for five months, the Prime Minister sent Conservative MPs out to attack the windfall tax and yet defend an increase in taxes on working people. He has made them vote against the windfall tax not once, not twice, but three times. For months, he has sent his MPs to defend the litany of rule-breaking in No. 10 Downing Street that was set out in the Sue Gray report yesterday. There is a lesson here for Conservative MPs: you cannot believe a word this Prime Minister says, and as long as he is in office, he will continue making fools out of each and every one of you. If they keep him there, that is their choice. The problem is that you cannot fake fairness—you either believe in it or you don’t.

Labour called for a windfall tax because it is the right thing to do. The Conservatives are bringing it in because they needed a new headline. We see that, too, from all the other things that the Chancellor did not address today: the non-doms keeping their tax privileges while the Government increase taxes on working people; young working people paying more, but those who earn money buying and selling stocks and shares not paying a penny more; contracts handed out to Conservative friends and donors while British businesses miss out; global tech giants making billions in profits while smaller businesses and the energy-intensive industries struggle with higher bills and higher taxes from the Conservative party; and £11.8 billion lost in fraud because of a total lack of respect for taxpayers’ money. That is why we should have had an emergency Budget today that spikes the hike in national insurance, cuts business rates for high-street and small businesses, provides help for energy-intensive firms and ensures that every pound of taxpayers’ money is spent wisely.

We will look closely at the detail of today’s announcements. Of course, most of them seem to be written by us, but so far we have seen nothing to suggest that this Conservative Government have the ideas or the energy to tackle the challenges we face as a country. A Labour Government would have addressed the underlying weaknesses in our economy, so that we can stop this spiral of inflation, lift wages and provide greater security for families and for our country. The truth is that the Conservatives are running our economy, and people’s living standards, into the ground. We are forecast to have the slowest growth and the highest inflation in the G7. This Government have weakened the foundations of our economy, leaving us exposed to shocks as we lurch from crisis to crisis, and still they refuse to come forward with a real plan to fix our broken system and provide the security we need to face the future with confidence. That means boosting our energy security too. We need to do much more to reduce our reliance on imported oil and gas. That is why Labour’s energy security plan includes a programme of home insulation, to reduce bills not just for one year, but for years to come and to get us all the way to net zero. It is why we have urged the Government to double onshore wind capacity and to end the delay on nuclear power. [Interruption.] And while we are at it, why did this Tory Government get rid of our gas storage—[Interruption.]

[Madam Deputy Speaker]

Order. It is important that we also hear the shadow Chancellor.

[Rachel Reeves]

While we are at it, why did this Tory Government get rid of our gas storage, which would have left us better protected from wild fluctuations in prices? When will this Government provide the strong leadership that this country needs?

There are a number of questions for the Chancellor about his announcement today. How many people are still waiting for the support they were promised in March? A third of his constituents are still waiting for their council tax discounts. Are households still being asked to pay the supplier of last resort costs for those energy suppliers that have gone bust as a result of a decade of failed energy market regulation? How is this package being funded, outside of the proceeds of a windfall tax? If someone has more than one home, do they get multiple discounts on their energy bills? I know that the Chancellor has adopted two of our ideas today, but may I ask why he has not adopted a third: a cut in VAT on energy bills? It was once touted as the big Brexit bonus, but he has ditched that too. This is a discredited, chaotic and rudderless Conservative Government, whose policies rarely last more than a few months. We pushed for a windfall tax and they adopted it. We said the buy now, pay later scheme was wrong and now they have ditched it. This Government are out of ideas, out of touch and out of time. When it comes to the big issues facing this country, the position is now clear: we lead, they follow. [Hon. Members: “More!”]

[Madam Deputy Speaker]

Order. We are not going any further unless you are quiet. I call the Chairman of the Select Committee, Mel Stride. [Interruption.] I beg your pardon. It would be best if I allowed the Chancellor first to reply to the shadow Chancellor. I am not trying to change the rules; I am just trying to go a bit faster. I call the Chancellor of the Exchequer.

[Rishi Sunak]

I thank the hon. Member for Leeds West (Rachel Reeves) for her contribution, albeit her response was based on a fundamental misunderstanding of why now is the right time to act. Since February and March, three significant things have changed: the situation in Ukraine has altered considerably from what was first envisaged; inflation is now tacking considerably higher than was previously expected; and finally, and most importantly, we now have concrete information on the autumn and winter energy price cap. With that information, we were better able to design and to scale our policies. That is why, with time and thought, our energy profits levy has a very generous investment allowance built into it—not something proposed in the Labour party’s blunt instrument.

Because we were patient, we have been able to scale our support to the problem, which means that our proposals are in fact more generous than those offered by the Labour party. Because Labour Members rushed it, they got their sums wrong. But we all make mistakes, and being able to change course is not a weakness: it is a strength. I will not criticise the Labour party for getting it wrong, just so long as Labour can acknowledge that with this package we have got it right.

Let me address some of the specific points. I think the hon. Lady talked about energy security and, somewhat bizarrely, reflected on the lack of investment in nuclear capacity. Well, this is the Government who are correcting the mistakes of the past.

The hon. Lady asked about energy efficiency. This is the Government who are investing £6 billion to improve energy efficiency.

The hon. Lady asked about business rates. This is the Government who are delivering a 50% discount in business rates for our high streets next year.

The hon. Lady talked about growth. One of the best ways to drive growth is to drive up business investment. That is something the Labour party will never understand.

The hon. Lady also asked about VAT. This goes to the heart of the issue. VAT is worth, on average, about £140 of support; our policy, universally—to all households in this country—is worth £400. That is the reason not to do VAT. What we are doing is far more generous.

My final point—I know we are pressed for time, Madam Deputy Speaker—is about ideas. For our constituents, there are only good ideas and bad ideas, and whether we can do anything about them. This Government can, because we are always on the side of the British people. This Government have been faced with challenges unlike any other and at every step we have achieved things that the Labour party said were not possible. We averted the mass unemployment crisis that Labour predicted because of our furlough interventions. We led the country out of covid with a vaccine programme that Labour would have left us unable to deliver. Each time I am at this Dispatch Box opposite the hon. Lady, I find myself thinking the same thing: the public can see through it. They know the difference between a party playing politics and a Government trying to help. [Hon. Members: “Hear, hear!”]

[Madam Deputy Speaker]

Order. That is enough. Now we will hear from the Chairman of the Select Committee, Mel Stride.

[Mel Stride (Central Devon) (Con)]

I broadly commend the announcement. My right hon. Friend has made a significant intervention to channel billions of pounds in a targeted series of transfer payments to those who most need it, but, as he will know, similar approaches were taken in the pandemic and there were many who fell through the gaps and missed out on support.

I note the additional £0.5 billion increase in the household support fund, which is welcome. Will my right hon. Friend set out to the House how he arrived at that figure and why he feels it will be adequate for the demand?

On the issue of inflation that my right hon. Friend raised, these transfer payments will stimulate the economy—granted, they will come with some tax increases as well—but will he share with the House his assessment of the inflationary impact of the announcement he has just made?

Finally, will my right hon. Friend appear before the Treasury Select Committee immediately after recess so that we can look at these matters in greater detail?

[Rishi Sunak]

I thank my right hon. Friend for his questions and for his thoughtful advice on how best the Government should respond to the current situation. We put extra support into the household support fund because, very specifically, the one group of those on means-tested benefits to whom we cannot deliver money automatically is those who receive only housing benefit, because that is administered by local authorities. That is the main group that needs that specific help, but of course there may well be others, which is why the fund is there.

On the inflationary impact, I believe it will be manageable, but my right hon. Friend is right to highlight it. That impact is why it is important that the support we provide is targeted where it can make the most difference, and that it is temporary and timely, and gets help to where it is required. That is the right approach: being fiscally responsible is going to help us to combat inflation in the long run.

[Madam Deputy Speaker]

I call the SNP spokesman, Kirsty Blackman.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is quite amusing to hear the Chancellor talk about this announcement being timely. I mean, it is timely: it just happens to have happened in the week of the Sue Gray report. It just happens that that report came out yesterday and the Chancellor has suddenly realised today that people are really struggling. He has suddenly realised that he needs to announce something.

At the spring statement, when the Chancellor announced the energy loan, he stood up and said, “Look at these amazing things that I am announcing.” He genuinely seemed to believe at that time that that was the best this Government could do. Now, he has changed his mind. He has listened to the calls of the Opposition and of the people up and down these islands who are struggling, in many cases more than they have ever struggled before.

I do not understand why the Chancellor has announced only a £15 billion package. He has £28 billion of fiscal headroom in public sector net debt and £32 billion of fiscal headroom in balancing the current budget—those are the Office for Budget Responsibility’s figures from March—yet he is refusing to spend that money now in the timely and targeted way that is needed for people now.

I am glad that the Chancellor announced money for the poorest households and that it has been targeted in that way, but it is not enough. What he has announced fails to uprate benefits; fails to account for the fact that the energy price cap that is coming in October will still be in place next year; and fails to ensure that benefits keep pace with inflation.

I have to laugh at the Chancellor’s comments about inflation. Brexit has increased food prices by 6%. Brexit has done that. People who are struggling to meet the most basic costs—the majority of their costs are for energy and food—have been hit incredibly hard by Brexit. The poorest 10% of households are seeing a massive inflationary increase in comparison to the richest 10% of households, because of the percentage of their budget that is spent on energy and food. The Chancellor needs to uplift benefits as well as making payments.

It was pretty cheeky of the Chancellor to choose to include the £150 council tax payment in all the figures he read out. That went only to people who live in homes in bands A to D. It certainly did not go to all pensioners and certainly cannot be included in the money that is going to all pensioners. It cannot be included in the money that is going to all universal credit claimants, and it cannot be included in the money that is going to all disabled people. It cannot be included in the cost of this support package because it is absolutely not universal. On that point, the payment that we made in Scotland went to a higher percentage of households than the payment made in England.

This package does not go far enough. We are going to see an energy price increase of more than £1,000 for all households because of the increase in the energy price cap, yet the Chancellor is providing only £300 extra for pensioners. That will not even touch that £1,000 increase. He is only including these things. The uplift should have been 9%, to match inflation, and there should have been a further £25 uplift to universal credit and a further £25 uplift to legacy benefits. Lastly, he has failed in the uplift for disabled people, who face the very highest cost because of the increase in energy costs and in the cost of, for example, their diets.

I am glad that the Chancellor has put in place the windfall tax. I am very disappointed that it covers only oil and gas companies. It should have gone much wider. We have been calling for this since 2020, with Kate Forbes and Ben Macpherson. [Interruption.] The Labour party failed to support our amendment on this last week, so Labour Members are a bit cheeky as well in suggesting that we have not moved on this.

I would like the Chancellor to go further, to make a difference and to actually care about the poorest people in our society.

--- Later in debate ---

[Rishi Sunak]

I know councils are working as hard as they can to get the payments to people, and we of course remain engaged with them, to help provide the support that they need to do that as fast as possible.

[Madam Deputy Speaker (Dame Eleanor Laing)]

I thank the Chancellor of the Exchequer for his swift answers to the questions following his statement.