Ian McConnell: Tory innovation idea laughable in face of cost-of-living crisis – try common sense

“Innovative” seemed, from what was said by the Prime Minister’s official spokesman, to reflect a desire by the UK Government to tackle the crisis on the cheap. At the very least, the context suggested extreme reluctance to release the purse strings to help the least well-off.

It is surely astonishing that it seems to have taken this long for the Cabinet to get to this very early stage of dithering about how it might go about resolving a huge inflation crisis, the impact of which on ordinary households it looks to have underestimated time and again.

And it is also astounding that the Johnson administration seems to think it can somehow solve the problem with “innovative” measures, without any need for significant extra money.

However, given the Johnson administration’s dismal track record when it comes to the impact of its policies on low-income households and the mess it has made and continues to make of the economy, we should perhaps not be surprised at all.

In any case, it is exasperating to watch the shambles unfold.

There was plenty of warning about what was coming. It was crystal clear well before the end of last year where things were broadly headed on the inflation front.

Yet the Johnson administration sat on its hands, rather than doing something meaningful to tackle or mitigate the impending crisis.

In fact, it was worse than that. It chose policies which have exacerbated the financial crisis for the worst-off households and will continue to do so.

Remember the UK Government’s withdrawal of the £20 a week uplift to universal credit to help the lowest-income households through the grim coronavirus pandemic and the economic fall-out from this?

We have also had Chancellor Rishi Sunak’s decision to freeze income tax thresholds for four years from this month. At a time of soaring inflation, this will hugely increase the tax burden on tens of millions of households.

Annual UK consumer prices index inflation hit a 30-year high of seven per cent in March, having been 0.4% in February last year. Annual inflation on the old all-items retail prices index measure hit 9% last month.

Pay will have to rise very significantly to help counter the effect of this, even if employers fall far short of matching the cost-of-living increase, and this will hugely increase the Johnson administration’s tax take at the expense of households.

Then there is the rise in national insurance rates, albeit the immediate pain of this has been eased by an acceleration of the planned hike in the earnings threshold below which NI is not paid.

And we also have the sorry situation of the rise in benefits for this financial year being way adrift of the prevailing rate of inflation because of a lag in the adjustment of such payments. It would be difficult to overstate the impact of this on the UK’s most vulnerable households.

Of course, all of this is dismal from a societal perspective. The Tories so often portray themselves as the helpers of ordinary people. It is up to individuals to look at the actual policies implemented by the Conservatives since they came to power in 2010, including a savage and ill-judged austerity programme, and form an opinion on whether or not they believe this is the case.

There is also a strong economic argument for ensuring that the lowest-income households do not bear the brunt of the cost-of-living crisis.

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The removal of disposable income from those who have to spend most or all of their income to live subtracts most directly from aggregate demand, and thus weighs heavily on growth.

You would have thought the Tories might have learned this from their savage austerity programme, which included massive cuts to welfare spending and public sector pay freezes and restraints. Who knows if they learned any lessons or not. If they did, they certainly seem determined not to implement any learnings for societal and economic good.

The University of Strathclyde’s Fraser of Allander Institute noted Chancellor Rishi Sunak’s Spring Statement last month had been “presented in part as a package of measures to assist households through this difficult time”.

However, Fraser of Allander director Mairi Spowage said: “The measures introduced by the Chancellor’s Spring Statement are not likely to be sufficiently targeted to help those on the lowest incomes. Consumers and businesses are going to feel the squeeze in the coming months, if they haven’t already, with soaring energy and food bills.

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“This has the potential to limit the economic recovery we hope to see during 2022, as consumers cut back on discretionary spending, and even perhaps businesses limit production due to input costs.These circumstances have led us to revise down our expectations for growth during 2022.”

Fraser of Allander now projects growth of 3.5% in Scotland this year, slowing to 1.5% in 2023.

The Tories’ lack of awareness of the scale of the cost-of-living woe for households is epitomised by the UK Government’s response to the energy price crisis.

A £693 per year or 54% hike in the energy price cap for a typical dual fuel customer was announced in February and took effect on April 1. The UK Government support on this front, trumpeted by Mr Sunak, includes £150 for households qualifying for the council tax reduction measure. There is a £200 “discount” but this has to be paid back over five years, is therefore surely a loan and should not be counted as assistance.

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It is a spectacularly inadequate response.

Mr Sunak has fallen to the bottom of the table ranking the popularity of Cabinet ministers among Tory party members, in a survey by the ConservativeHome website. His near-celebrity status during the Tories’ Eat Out to Help Out discounted dining campaign of summer 2020 looks to have faded fast. Mr Johnson is third-bottom.

Of course, popularity rankings are fickle things. Mr Johnson was all the rage at the time of the December 2019 general election for his “get Brexit done” mantra, which gave the Conservatives the big majority they have in the House of Commons. A determination to implement something that would harm the economy and living standards boosted, rather than diminished, his popularity at that stage.

However, it would seem likely that the popularity of Messrs Sunak and Johnson will not be bouncing back fast if they do not act to mitigate the cost-of-living crisis.

Spin, or talk of “innovative” ideas will surely not be enough. What is required is implementation of tried-and-tested measures to put money in the pockets of those hit hardest by the inflation crisis, as opposed to removing it. This will cost money but it will help mitigate the impact of inflation on growth, if support is targeted effectively. And the Tories could always consider some redistributive policies, although this seems unlikely if you consider how determined and swift they were to remove the 50p top rate of income tax after coming to power more than a decade ago.

Innovation is not the key to solving the cost-of-living crisis – we are not talking about something like the creation of a system on a chip or advancing battery technology.

The measures required are simple. They involve giving more money to and easing the burden on the poorest to bolster aggregate demand and mitigate the cost-of-living squeeze on growth.

Of course, many of the sensible economic measures will go against the instinct of the Tories, who were quick to abandon their temporary uplift to universal credit.