Economy Update

Lord Forsyth of Drumlean Excerpts

Thursday 26th May 2022 Lords Chamber

[Baroness Penn (Con)]

I am not sure that I picked up the noble Lord’s questions there, but he did talk about the potential inflationary impact of this announcement and asked what the Government are doing to tackle inflation. I can say to all noble Lords that we have three tools available to us to combat and reduce inflation and we are using them all. First, we have strong, independent monetary policy, overseen by the Bank of England. Secondly, we have responsible fiscal policy from this Government. I am cognisant of the potential inflationary impacts of announcements such as these and that is why we are ensuring that the support we are putting in place is targeted, timely and time-limited. We will continue to take difficult fiscal decisions to ensure that we remain within our fiscal rules. Thirdly, we are taking an activist approach to supply-side reforms, which will increase our productive capacity, ease inflationary pressures and raise our long-term growth potential. I do not think the list of further taxes that the noble Lord said he wanted to apply would encourage more investment in our economy, which is what we need to see the growth that we all want and to support the record lows in, for example, unemployment that this Government have presided over.

[Lord Forsyth of Drumlean (Con)]

My Lords, could my noble friend help me by explaining something? During the Covid lockdown, when there was the furlough scheme and many employers kept people in employment, the Chancellor thought it was appropriate to increase universal credit by £20 a week, which is £1,000 of additional income for some of the poorest people in our country. If that was thought appropriate then, why is it not thought appropriate now, when those people are facing—in the words of the Governor of the Bank of England—“apocalyptic” increases in prices? What is the logic of the Chancellor’s position?

[Baroness Penn (Con)]

My Lords, the increase in universal credit was always brought forward as a temporary measure as, through the restrictions needed to deal with the Covid pandemic, large parts of our economy were effectively shut down. We face a different set of challenges now. They are severe for many households, but they are to do with inflationary pressures and a large part of that is driven by energy prices, so we are targeting our response towards dealing with that. Under our plans, the lowest-income households will receive around £1,200, which is roughly equivalent to the expected increase in costs for the energy price cap rise. Some people benefited from a UC uprating or temporary uplift, but pensioners who struggle with energy bills did not benefit under that system. People with disabilities, who can face higher energy costs, did not necessarily benefit from that UC uplift. This is a targeted set of measures to deal with a specific set of problems and it should be welcomed.