Economy Update
Debate between Lord Collins of Highbury and Baroness Kramer
Lord Collins of Highbury (Lab)
My Lords, I am grateful to the noble Baroness for giving us the opportunity to respond to the Statement. These are incredibly difficult times for people across our nation. That much has been clear for several months, so the obvious question is: why is action being taken only now? Many will see this as an attempt to spare the Prime Minister’s blushes after the publication of the Gray report, which we debated last night, rather than a sign that this Government are on their side.
Inflation is running at a 40-year high and is yet to peak. According to recent analysis, the inflation gap between the richest and poorest is growing, meaning that low-income households are bearing the brunt of the cost of living crisis. As the Chancellor acknowledged in his Statement, we expect the energy price cap to rise by a further £800 in October, and this will take energy bills to their highest level since records began. This crisis is hurting everybody, but it will hit those at the bottom of the income distribution the hardest. The Institute for Fiscal Studies predicts that by October the poorest 10% of households will experience an inflation rate of 14%. By contrast, it will be 8% for the richest 10%. That situation is neither fair nor sustainable.
The various initiatives announced in the Statement are welcome—but of course we would say that as we have been calling for an energy windfall tax for nearly five months. Energy bosses themselves have admitted that they do not know what to do with the unexpected surge in their profits. They have been clear that a windfall tax would not be a disincentive to invest in their operations, and they are already ramping up their investment plans and have money to spare. They can comfortably do both. Despite growing cross-party consensus and the sector’s invitation to act, the Government whipped against a Commons vote on a windfall tax just nine days ago. Of course, the announcement of this temporary targeted energy profit levy is better late than never, but each day of dither and delay has caused unnecessary stress for households and their finances.
We welcome the targeted support for millions of the most vulnerable households across the UK; a significant weight will be lifted when these cost of living payments arrive over the coming months. But this too could have been announced long ago, providing quicker help with April’s cost-cap increase. In the light of Ofgem’s recent announcement, we are also glad that the Government have gone further on universal support. Crucially, the Chancellor has finally dropped the ill-conceived loan element of that scheme. It was wrong to adopt that option and the public immediately saw through his spin. The reduction will no longer be recouped through other increases to bills over the next few years—another Labour policy in action.
One decision ducked by Mr Sunak was on cutting VAT on energy bills. This could have been delivered overnight had the VAT cut been adopted when Labour proposed it last October. It is not the case that many would have had a more comfortable winter? We know that there is growing support for that policy on the Conservative Back Benches, in another place at least. It was even previously touted by the Prime Minister—but I suppose we should not be surprised that he did not keep his word. So can the Minister tell us whether the Treasury will at least be keeping the VAT card up its sleeve should the economic conditions driving increased bills not improve? Can she also confirm whether the Treasury will publish details of how this package is being funded beyond the new windfall tax? Finally, can she give an indication of when enabling legislation for the windfall tax will be brought forward?
In conclusion, we welcome the Government’s U-turns, but there is much more work to be done if people are to be protected from similar price shocks in the future. Given the Government’s willingness to listen to Labour’s ideas, I hope we will soon see aspects of our wider energy plan—for example, rapid action on home insulation and the doubling of onshore wind capacity—put into action.
Baroness Kramer (LD)
My Lords, I honestly do not think anybody in this House is seriously fooled. The announcements by the Chancellor today, including the U-turns on a windfall tax and increasing benefits, are basically covering fire for Boris Johnson and his disgraceful role in partygate. The timing gives it away. People have been suffering from a cost of living crunch through much of this winter, making an appalling personal decision on eating or heating. They have needed that help.
The Chancellor says today that he did not know until yesterday that the energy cap would go up by £800 in October. He must be the most out-of-touch person in the country. He could have talked to anybody, on any street, and they would have told him not only that the cap would go up but the amount.
I do welcome today’s package. Anything is needed when a crisis is this urgent and desperate, but one of my concerns is that it covers only the increase in energy costs. The Chancellor’s own speech explains that the average increase in people’s energy bills this year will be just under £1,200. He goes on to say that this is
“the same amount as our policies will provide for the most vulnerable people this year.”
There are other serious pressures, notably the increase in food prices, which are falling most on people on the lowest incomes. I wonder whether the Minister will tell us what experience ordinary people will have and how much more per week it will cost them to deal with those higher food bills. That problem is desperately acute.
There is nothing in here for businesses. I took a quick look at the response from the response from the British Chambers of Commerce, which is usually a very modest group that is always likely to welcome—and does welcome—the actions of the Government. It states:
“For business, the toxic mix of inflation, raw material costs and supply chain disruption”,
largely from Brexit,
“is the flip-side of the coin to the problems facing consumers. Unless steps are also taken to ease business costs, they will likely feed into the inflationary pressure on the economy and quickly eat into the financial support announced today.”
We must not forget that individuals are also facing significant increases in taxes. National insurance contributions are going up 1.25% and, because thresholds have been frozen, many people will find that their income tax bill is shockingly higher than they ever anticipated.
I would like to understand more about why the Chancellor has chosen not to go further. He is going to see £7 billion coming in today from the tax on oil and gas. I agree with others that the oil and gas companies can very much afford to do that. I note that they still plan share buybacks and saw nothing in the market to suggest that that has changed. BP is not cancelling its planned £8 billion in share buybacks this year, nor Shell its £6 billion in announced plans. The Chancellor also now has £8.6 billion in extra VAT due to inflation this year, rising to £40 billion by the end of the Parliament. With that kind of windfall coming into the Treasury itself, there is scope to do a great deal more.
I join others in my party who have called for a cut in VAT, because that would stimulate business, particularly small businesses; take pressure off companies that thought they were going into clear waters coming out of Covid but are now wondering if they are going to survive; and help those on the lowest incomes deal with this severe increase in food prices. Essentially, it is largely paid for by the extra revenues that flow into the Treasury thanks to inflation. Can the Minister explain why that has not happened and why, under those circumstances, the Government are absolutely determined to go ahead with their increase in national insurance contributions, which is going to diminish the pay packet of virtually every working person in the country?