Government under pressure from Labour and economists on cost of living squeeze

Households are set to be £2,620 worse off due to the cost of living squeeze facing the country, Labour will say on Thursday.

New analysis from the party – as it launches its local election campaign – comes as the Prime Minister is under increasing pressure to tackle spiralling costs and experts warned of the impacts.

Sir Keir Starmer will call on voters to “send the Tories a message they cannot ignore” as he pledges to cut energy bills by up to £600 – funded by a windfall tax on oil and gas companies.

It comes as senior economists told the Treasury Select Committee that measures announced by the Chancellor Rishi Sunak last week will leave the poorest, out-of-work households the worst-off group from his support packages.

The Prime Minister admitted on Wednesday that child poverty is an issue the Government must “fix”.

But he defended Mr Sunak’s decision not to uprate Universal Credit in the spring statement to help people to pay their rising energy bills.

The Prime Minister told the Commons Liaison Committee that the aim was to get people into work but denied that he had lost confidence in the benefits system, saying: “I know how tough it is for people to meet the cost of energy and I think you’re raising a very reasonable point.

“And you have to decide where you’re going to put your fiscal firepower given that we don’t want to put up taxes and we don’t want to borrow any more, so what are you going to prioritise and who are you going to make sure you target in order to have the maximum economic benefit for the whole country?

“What we think very strongly is you’re better off helping people into work.”

But Labour’s research, to be unveiled in Bury on Thursday suggests families are on track to be £2,620 worse off – even after the Chancellor’s spring statement.

This combines estimates about the rise in the tax burden, energy prices, petrol, food shopping and mortgage costs.

Sir Keir will say: “Britain deserves better than the pathetic response we got to the Conservative cost of living crisis in the mini-Budget.

“You know the reality – prices are going through the roof, and wages are going through the floor.”

He will claim the Conservatives have overseen “the biggest drop in living standards since the 50s” and the highest taxes in 70 years.

“Even allowing for everything the Chancellor announced, families are £2,620 worse off. Britain deserves better than this,” he will say.

“Working families feel more insecure than ever. While prices are rising in the supermarkets, at the petrol pumps and in our electricity bills, the Government has chosen to put up national insurance at exactly the wrong time.

“That’s why Labour would tackle the Tory cost-of-living crisis by cutting your bills by up to £600 funded by a windfall levy on the excess profits of the oil and gas companies.”

Earlier, Torsten Bell, chief executive of the Resolution Foundation think tank, said: “I was very surprised that the Chancellor had chosen the overall package he had when it came to what was on offer for lower-income households.”

He pointed out that lower-income households will feel the pressure from rising energy bills – which is driving inflation.

The economist added: “It is an odd choice to have offered basically next to nothing to those households in this spring statement.

“I didn’t think he would do that and I was wrong.”

The Resolution Foundation has calculated that the cost of living crisis will push 1.3 million households into absolute poverty.

Middle-income households can expect to see disposable income fall 4% next year after housing costs.

For those in the poorest quarter, income falls 6%, and for out-of-work households it falls by 8%, it said.

Mr Bell added: “The surprise is he didn’t try to do anything to reduce the increase in absolute poverty.

“The Chancellor has consistently gone out of his way to concentrate support for those in work.

“The blindingly obvious answer is you need to uprate benefits in April by more than we are doing, so that the level of the real terms cut over the course of this particular year isn’t huge.”

Paul Johnson, director of the Institute for Fiscal Studies (IFS), agreed with an uprate in benefits and said there are mechanisms available to do it.

He told MPs: “These are really big falls in the real living standards for households that are budgeting over relatively short periods of time.

Gemma Tetlow, chief economist at the Institute for Government (IfG), said all groups will feel the pain of the cost-of-living crisis, but higher income households will be better protected because they managed to save money during the pandemic.

A Treasury spokesperson said: “We understand that people are struggling with the rising cost of living – we can’t shield everyone from the global challenges we face but we’re putting billions of pounds back into the pockets of hard-working families across the UK.

“We’ve taken action worth over £22 billion next financial year to help with the cost of living including a 5p cut to fuel duty for the next 12 months, increases to national insurance thresholds that will save a typical worker £330 per year, and an extra £500 million for the Household Support Fund to help those most in need.

“We’re also helping low-income families keep more of what they earn by reducing the Universal Credit taper rate, boosting incomes by £1,000 per average full-time worker by increasing the national living wage and providing over £9 billion to help with rising energy bills.”