How to tackle the cost-of-living crisis and the recession

The government is not providing the same level of support from April as they have this tax year. From April an average household and pensioners, not on pension credit, living in a band A to D Council Tax property will have £1050 less support for their energy bills than this year. Someone on benefits next year will only receive £900. If they live in a band A to D Council Tax property they will have £800 less support for their energy bills than this year.

To ensure people are not worse off next tax year than this year the government should restore the energy price cap back to £2500, restore the £400 for all households; increase the £300 for pensioners to £450; and increase the income tax personal allowance and the National Insurance threshold to £13,040, which will provide those earning above £13,040 with £150.40.

To help finance this measure and ensure that those on above average earnings do not benefit to the full extent from the support the government should introduce a temporary new Income Tax rate of 22% for those earning more than average earnings (£38,000) and increase temporarily by 2% the higher tax rate to 42% and the additional tax rate to 47%. When the energy support ends these temporary rates should be abolished.

Also to help finance this the government should adopt our party’s policy of closing the loopholes in the current windfall tax by ensuring it applies to super-profits accrued since October 2021; scrapping carve-outs that allow oil and gas giants to offset their tax liabilities against investments they were going to make anyway; and setting a target of raising no less than £10 billion over one year, in line with similar taxes implemented in other European countries.

The government should also extend the energy support for businesses for another 12 months until 31st March 2024.

The support for households is likely to reduce forecast inflation by 1% and extending the current energy support for businesses is likely to reduce forecast inflation by a further 2%.

In November Ed Davey announced in his  autumn statement a proposal for a Mortgage Protection Fund funded by the government ‘to cover the extra costs for those families seeing their payments rise most sharply’. Instead we should call on the government to ensure that no mortgage could be foreclosed over the next 24 months so long as the amount being paid is at least 50% of the monthly payment and that the mortgage is not more than 12 monthly payments in arrears at no cost to the government. Also the government should allow all people in receipt of Universal Credit to get support for their mortgage interest; and increase the amount of mortgage that help will be applied to from £200,000 to £290,000 to help people with an average value home.

As well as these measures to help people with the cost-of-living crisis, the forecast recession should be fought with an economic stimulus of £24 billion:

  • £6 billion extra to councils for home construction or repair programmes;
  • £6 billion to be divided across the regions and nations of the UK for capital spending programmes; and
  • £12 billion for insulating the homes of the poorest in society across the whole of the UK.

This is likely to turn the November OBR forecast decline in the economy in 2023 of 1.4% into economic growth of at least 1.4%.

By providing from April the same support for households as this tax year inflation would likely be reduced by 3% and this will stimulate the economy rather than removing demand from the economy. Then together with the economic stimulus of £24 billion for the rest of the year the 1.4% economic decline forecast in November by the OBR is likely to be turned into economic growth of at least 1.4%.


* Michael Berwick-Gooding is a Liberal Democrat member in Basingstoke and has held various party positions at local, regional and English Party level. He posts comments as Michael BG.

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  • Jenny Barnes 1st Feb '23 - 10:11pm

    Median uk full time salary is £31.3k.

  • Steve Trevethan 2nd Feb '23 - 9:29am

    Thank you for your article and the research you put into it.
    Might a foundational set of concepts be that “The Market” does not self regulate for the efficiency and equity of its whole society and that “First Past the Post” voting results in governments which also do not perform for the whole of society.

  • Energy support money for businesses is going straight into energy company bumper profits

  • The autumn Budget announced that the windfall tax would be hiked from 25 per cent to 35 per cent and extended for two years until March 2028. The Chancellor also tightened the rules around the investment allowance so oil and gas firms can only cut their windfall tax bill by 29 per cent of the amount invested in new extraction, down from an 80 per cent discount.
    Labour announced proposals that would extend the windfall tax aimed at closing the fossil fuel investment loophole. What is referred to as a loophole here is the ability to offset investment spending against taxable profits instead of by way of an annual capital allowance. It is accelerated depreciation rather than a loophole and often used to spur investment as Sunak did with a 130% first-year tax relief on corporation tax for new and unused assets that would traditionally be pooled within the main rate pool and get relief at 18% per year.
    Taxing super-profits on an ongoing basis (rather than on a temporary basis) may be best achieved through a form of Land Value Tax such as Petroleum Revenue Tax on North Sea oil and gas fields.

  • Katharine Pindar 3rd Feb '23 - 12:12am

    Alastaire S. Even big businesses can fail and are failing, Alastaire as I am reminded every time I visit my local town centre and see the huge empty shell of what was Debenhams, but there are many small businesses struggling to stay open and in need of continuing help.
    I’d like our party to be advocating many more policies such as Michael suggests, not only asking for continuation of this year’s help for households and some protection for mortgage holders and renters. We should be unabashed in advocating taxing wealth and super-charging the oil companies more, obviously Shell for one, to help pay for the needed increased help for struggling households and businesses. There needs to be spending power given back to people, to shop and invest and grow our failing national economy once more.

  • Jenny Barnes,

    I had been using a lower figure for medium earnings (in October I was saying that average earning was £32,084, but newspaper reports in November were talking about £38,000 as medium earnings. It is possible that there is a difference between medium salary for employees and medium earnings which includes overtime pay and non-employees. However I should have checked my figures. According to the ONS latest report medium full-time pay for employees is £622 a week, which is £32,344 a year ( I will use the most current figure I can find in future.

    Someone earning £38,000 will be at least £900 worse off next tax year compared to this tax year assuming they don’t live in a home in a to d band for council tax. If the 22% rate started £33,000 they would pay an extra £100 a year in income tax.

    Steve Trevethan

    Thank you for your positive comments. Liberals have recognised that the market does not provide the best outcome for society as a whole for over a hundred years. I don’t have the data to reach a position on whether a PR election system provides a government that performs better for the whole of society than the FPTP system.


    The high price of ‘retail’ energy prices is what is providing the producer energy companies with their bumper profits this is why these profits have to be subjected to a large windfall tax that can fund the energy support that both people and business need.

  • Joe Bourke

    Thank you for your comment. The producer energy companies are benefiting from the higher price of gas and so these higher profits should be taxed so the companies and their shareholders do not benefit from something they did nothing to deliver and to help fund the energy support schemes.

  • In yesterday’s press releases the party raises the issue of the April energy price increase and mortgage interest increases (

    Ed Davey supports not increasing the fixed price of energy by £500, in a press release he is quoted as saying the government must “at the very least ensure that energy bills don’t rise yet again in April”. While he doesn’t say it, it is implied that the government should continue giving people the same level of support as they have had this tax year so they don’t have to pay more for their energy next tax year.

    In another press release Ed Davey says that “Since Rishi Sunak became Prime Minister, the typical homeowner is paying £822 more in mortgage interest payments”. In 2021 the average size of a mortgage was £193,000. On such a mortgage a half a percentage interest rise increases the monthly interest payments by about a further £80.42.

  • Katharine Pindar 3rd Feb '23 - 9:16pm

    I am glad that Ed Davey is saying that energy bills for householders must not rise again in April. But he and our other Parliamentarians and spokespeople will have to fight for this. The Chancellor is planning a March budget, promising to stand up for businesses and not to increase taxes further, but there is no mention of help for householders with the expected further energy price rises. Despite the assistance to householders this winter, ordinary people have still struggled to pay their increased energy bills, and as we see in the TV news programmes, poorer families have been forced increasingly to use food banks and other charitable sources because of the rise in the cost of basic foods. Our party needs to protest about the hardships, and join with the Official Opposition in opposing costs for households rising further in April. I hope our York Conference will speak out strongly on these lines next month.

  • Peter Hirst 4th Feb '23 - 4:01pm

    Could all this discussion on the COL crisis be an attempt to divert attention from the blows to our economy over the last decade or so? We can only pay the public sector over the long term what we earn by exporting goods and services. To think that this government is tanking on the economy shows the depths to which that Party has fallen.

  • Peter Hirst,

    The cost-of-living crisis is real and will be worse after April when the energy price goes up by £500 and lots of people will receive £1050 less government support towards their energy bills. Most people’s spending on other goods and services will have to be reduced by £1550 on top of the reduction caused by increased food and clothing prices. This is one of the causes of the predicted recession.

    UK governments have failed to run the economy well since 2010. Between 1998 and 2007 average economic growth was 2.72% with a high of 4.1% in 2000 and a low of 1.8% in 2002. Between 2010 and 2019 average economic growth was 2.02% with a high of 3.2% in 2014 and a low of 1.1% in 2011. (I have not included 2020 and 2021 because of the huge decline of 11% in 2020 and the abnormal increase of 7.5% in 2021 both caused by Covid.) The Conservatives can’t run the economy properly.

    The government could tax the wealthy more and use this money to increase pay in the public sector. This is likely to increase economic growth because those working in the public sector are likely to spend it into the economy while the wealthy are less likely to spend the money as it is marginal to them.

  • Nonconformistradical 4th Feb '23 - 10:30pm

    “The government could tax the wealthy more and use this money to increase pay in the public sector.”
    Seconded. It seems far too easy for the wealthy to indulge in tax avoidance.

  • Katharine Pindar 5th Feb '23 - 10:56pm

    I was disappointed in hearing Ed Davey being interviewed by Laura Kuensburg on her 9 am BBC 1 programme this morning. Ed spoke on what it seems is his favourite subject, the need to pay carers more because they deserve it and we need more carers to enable hospitals to free up beds. This is all good stuff, but in that prime TV opportunity, I wish Ed had demanded more help for ordinary people with the projected new increase in energy bills come April. It’s our policy, and Michael asked for it in his article. What should matter most to us as Lib Dems is surely preventing worsening poverty with the increasing cost of living, with basic foods costing much more and already energy costs so high even with the government’s ‘help for households’ from October till March. I don’t think ordinary voters would have been very impressed by Ed’s choice in his five minutes.

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