Personal Finance

Households falling into poverty isn't inevitable. Here's how we can prevent it | Carys Roberts


The “out of touch” award this week goes to Lee Anderson, a Conservative MP who claimed in the Commons that there isn’t a massive need for food banks in the UK. As he sees it, the problem is that families don’t know how to cook or budget. His comments were refuted by his local food bank as well as campaigners such as Jack Monroe, famed for her tight-budget recipes, who artfully put it: “The square root of fuck all is ALWAYS going to be fuck all, no matter how creatively you’re told to dice it.”

One problem with out-of-touch politicians is that they are unable to imagine how bad things can get and overestimate the ability of families (and voters) to cope. Right now, the dashboard is flashing red. The Bank of England has forecast that inflation will reach 10% this year, as the energy price cap is lifted and the economic shocks from the war in Ukraine continue. For some families, the impact will be felt more deeply still – for those who live in poorly insulated homes, who are disabled and haven’t benefited from existing measures, or who already only spend on the bare essentials. The former boss of Sainsbury’s has declared that the UK’s “golden era” of cheap food is coming to an end. Two million adults didn’t eat for a whole day in the past month due to tight finances, and the National Institute for Economic & Social Research (NIESR) has warned that an additional 250,000 households face destitution in 2023.

Inflation would be less of a problem if incomes were rising proportionately, but despite a tight labour market, wages are falling short of rising prices and pay packets are being spread increasingly thin. The problem is likely to get worse. As economists had already warned, higher prices of essentials are cutting into the money people have in their pockets to spend in shops, pubs and the wider economy. That’s having a knock-on impact on the UK’s consumption-dependent economy as a whole, raising the spectre of “stagflation”, when the economy shrinks but prices are generally rising.

The future is therefore looking grim for ordinary families hoping to get by. Many of those on very low incomes are likely to find themselves going into high-cost debt to keep the lights on and food on the table over the next year. But the effects will be felt much more broadly – and by a broader section of the electorate.

Predictably, the clarion calls for tax cuts and the gritting of teeth to ride out the pain have begun. Households falling into destitution is not inevitable. The biggest causes of current inflation are rising energy prices in the wake of the war in Ukraine and supply shortages exacerbated by lockdowns in China – though there are signs that inflation is now becoming more broad-based. The government may not be able to prevent these, but it can choose how to prepare and how to respond, including who in society is asked to bear the additional cost.

Right now, many families across the country simply cannot bear that cost. The government could support them, and the economy as a whole, by finding better ways to get cash into pockets – fast. At a minimum, universal credit and legacy benefits should be increased in line with inflation. Boosting child benefit and expanding eligibility for the cold weather payment or winter fuel payment would also help.

The costs of inflation could – at least in part – be borne by those making large and unearned profits from the higher prices that are causing so much economic pain. The first priority, to fund support for households, should be a windfall tax on the extraordinary excess profits of oil and gas companies benefiting from high global prices. Those profits are being distributed to shareholders rather than being invested – with only a small fraction of the returns going to UK pension funds or their ultimate recipients.

As well as providing immediate support, government should be addressing the root causes of the UK’s vulnerability to inflation. That requires unhooking ourselves from our addiction to fossil fuels and reducing how much energy we use, which was yet again ignored in the Queen’s speech. A major programme to ensure every home is well insulated could ensure all homes are affordable to keep warm. This, together with an accelerated switch to green energy, is key to protecting the UK from the turbulence of the global energy market and Vladimir Putin’s actions.

The government also urgently needs to increase the capacity of the UK economy to boost growth prospects and ensure stable demand doesn’t exceed shrinking supply. There are currently more than a million fewer people in the UK workforce than we’d have expected prior to the pandemic, with up to 400,000 missing because of health-related problems. Investment, for instance in health, social care and childcare, could enable people suffering ill-health themselves, or looking after others, to take part in work.

The political risk for the government in failing to act is that they signal they are either out of touch with ordinary voters, or not on their side. IPPR North and Survation polled seats like Lee Anderson’s, which turned Conservative in 2019, and voters were far more likely to say that Labour understood their area than his own party. The politics of the coming months and years will be about which party can show it understands the crisis situation that so many are facing, and will stand on their side.





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