A typical family has been left almost £1,200 poorer in the 100 days since Rishi Sunak became Prime Minister, new analysis by the Liberal Democrats has revealed.
The party warned that families across the country are suffering from the “cost of Conservative chaos”, as housing costs, taxes and rising energy and food bills all eat into their incomes.
The research shows that a typical squeezed middle household with a mortgage will have seen extra costs of £1,170 in the 100 days since Rishi Sunak became Prime Minister on 25th October. This is made up of £822 in extra mortgage interest payments, £132 in extra taxes due to the freezing of income tax thresholds and £216 in additional food bills.
This is due to get even worse in April, when under government plans the average family will see energy bills go up by £500 a year.
It comes as the Bank of England is expected to raise interest rates for the tenth time in a row later today, hitting mortgage borrowers with even higher repayment costs.
The Liberal Democrats are calling on the government to cancel April’s energy price hike, and bring in a Mortgage Rescue Fund and renters’ support package to help families at risk of losing their homes.
Liberal Democrat Leader Ed Davey said:
Rishi Sunak’s first 100 days in office have been a crushing disappointment, with a worsening cost of living emergency and NHS crisis.
The cost of Conservative chaos is hitting families who are seeing their incomes squeezed while local health services are stretched to breaking point.
The Conservative Party is still mired in sleaze and chaos, with no proper plan to fix the challenges facing the country. They either just don’t care or don’t get it.
It is unthinkable that Sunak wants to make this crisis even worse by hiking people’s energy bills further in April. The Liberal Democrats are offering a fair deal where families facing soaring mortgages and rents are offered emergency support, and where the energy price rise is cancelled. We will stand up for communities around the country being totally taken for granted by this Conservative government.
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21 Comments
Most of the increase is down to the “Trussonomics” growth plan. These people have no evidence for the idea that tax cuts cause growth, probably because it doesn’t. There are things that might help- building a lot of social housing, for example. But apart form the idea of the “laffer curve ” the new Conservative Growth Group, which includes luminaries such as John Redwood exhibits strong Dunning Kruger charecteristics. General election now.
To rub salt into the wounds this government is prepared to allocate thousands of pounds of taxpayers money to defend Boris Johnson over the“ partygate” affair. It would be laughable if wasn’t so serious?
” These people have no evidence for the idea that tax cuts cause growth……”
It depends on what sort of tax cuts. If VAT and the lower rates of income tax were cut then everyone would have more spending power. The economy would become more buoyant number of financial transactions would increase which would mean that government income would not fall due to the lower rates of taxation.
There is plenty of evidence that this happens. Such as when VAT was reduced to 15% after the 2008 GFC. The downside will be increased inflationary pressures due to a more active economy.
It’s a mistake to think in terms of what is fully costed and what isn’t when it comes to tax cuts and spending rises. Money is created by government as it spends and is destroyed when it taxes. So more spending means more taxation revenue. This however is immaterial. Inflation and the level of economic activity is what does matter.
I suspect you mean that there is no evidence that tax cuts aimed at the rich don’t cause growth. This is more a matter of political ideology than economics and I would agree with you.
I meant to say: “… there is no evidence that tax cuts aimed at the rich do cause growth.”
“I meant to say: “… there is no evidence that tax cuts aimed at the rich do cause growth.””
So maybe there is scope for taxing them more? Or at least cut out their opportunities for tax avoidance?
Well said, Mark!
I can’t help but think the concept of measuring economic growth by spending is a joke. It was reported that the football world cup created economic growth when all that must have happened is that football supporters drew on their savings to watch the matches at their pub or clyb, and buy va drink or place a bet Surely economic growth must mean the creation of a new sustainable industrial activity
@Christopher Haigh
There are three way of calculating the level of GDP – by estimating the value of all output, by estimating the value of all spending and by estimating the total expenditure. Economic growth is when GDP is increasing. It does not matter whether the increase in GDP is driven by increases in extractive industries, extra industrial production or expansion in the service sector. My main criticism of GDP usage is when rising GDP is taken as a sign that things are getting better – things may be improving but a lot depends on whether the distribution of the Income is widening or narrowing economic inequality, and on what the wealth of the nation is actually spent on (eg nuclear weapons or more nurses)
Apologies for careless error – the three ways of estimating GDP are via output, spending or all incomes.
The fundamental point behind this piece, that the typical family is £1200 worse off since Rushy Sanuk (as Joe Biden likes to call him) came into office, seems entirely plausible. But correlation isn’t causation. The majority of that rise is down to interest/mortgage increases and they are a global phenomena and something the Bank of England rather than Rishi decides in the UK. Broader inflationary pressures are down to supply chain issues that go back to covid lockdown and of course Putin’s war and it’s effect on energy prices. Throw in Brexit and the long term decline of the pound that is a result of our loss of competitiveness (and our failure to adequately address supply side issues) and you have a clusterf**k that the whole of our political class have to accept some responsibility for.
I agree with Jenny that Truss and her cack handed efforts to engender growth have made the problem worse for the UK than other comparable economies, but everybody is suffering to some extent, for example, I was reading recently about fears of large scale mortgage arrears and a collapse of the housing market in Canada. Is any of this the Tories fault ? Well, yes. Is it Rishi Sunak’s ? Given he’s been there just over 3 months, that would be a harsh call ? Does he inspire us with confidence that he has the answers ? Well, no, not really.
Perhaps we should have a new thread. “What I would do next if I was Rishi Sunak ?”
If the tories have trashed the economy it’s due to brexit, and more particularly the hard brexit imposed. Truss’s mini budget certainly hurt the tories reputation for economic management but it is not to blame for the interest rate rise. That is almost all down to Putin’s war in Ukraine. If the mini budget wasn’t reversed there would probably have been 100 bp added to the rate but given the recovery in gilts it is unclear that it materialy contributes.
@Peter Martin”If VAT and the lower rates of income tax were cut then everyone would have more spending power.” etc
I don’t think that would lead to growth. They would have more cash. And as you have said many times, if you need to decrease inflation you need to increase taxes – and vice versa. So the more cash would just generate exactly as much inflation as needed to leave everyone more or less where they started. Except with the inflation and lower taxes, government expenditure would have to fall, thus reducing the quality and availability of public services such as the NHS, dentistry, sewage processing etc. So everyone is now having to pay for private services to replace the public ones that have been scrapped to pay for the tax cuts, apart from those who can’t afford it, who can just carry on being ill or living near a sewer that used to be a river.
I can see the attraction of such a programme for the right wing headbangers in the Tory party, but it strikes me as completely mad.
@ Chris Cory,
“I was reading recently about fears of large scale mortgage arrears and a collapse of the housing market in Canada.”
There are similar fears about the USA too. The US Fed is being aggressive in raising interest rates just as they did before the 2008 crash. Nothing much happens at first, but then the avalanche of bad debts starts. There is an exponential rise in the incidence of bad debts with one bad debt causing more than one other on a dollar for dollar basis. We then have a crash and its down to Govt to rescue capitalism!
There has been some optimism that our recession will be milder than predicted. I’m not so sure. Like we saw in the USA in 2008, the crash, if it happens, will start there and spread globally.
” they (rising interest rates) are a global phenomena and something the Bank of England rather than Rishi decides in the UK.”
The BoE, which is fully nationalised and essentially part of Govt anyway, only decide because the Govt tells them to do that. The Govt could bring back monetary policy in-house any time it likes. Ultimately interest rate levels are a Govt decision.
Politicians like to pretend otherwise for obvious reasons.
Jenny Barnes,
If there is spare capacity in the economy then giving people more spending power should lead to economic growth rather than inflation. However, I think that the government spending more is a better way to get economic growth. As you suggested building more social housing would create economic growth straight away when the homes are being built, then if the workers were unemployed before working on building the houses then they would have more spending power. Their increased spending power if there is spare capacity would lead to further economic growth.
If there is no spare capacity in the economy building more social housing would not grow the economy and could be inflationary. Instead of adding to the economy workers just switch from their previous building project to building the social houses. If they are paid more and no more goods or services could be produced in the economy then their increased spending power would lead to inflation.
@Jenny and Michael,
Jenny is right to question whether more spending power will always cause growth. The problem is that our economy depends, many would say far too much, on the ready supply of fossil fuels which is still in the control of an international cartel. Just as it was in the 70s.
If there is a reduction in supply, the price will rise and we’ll all have to make do with less. It feels like inflation but it is questionable that it really is. If the supply of avocados, for example, falls the price will rise and we’ll have to make do with eating fewer of them. We don’t call that inflation but, in principle, the economics is just the same. The only difference, of course, is that the price of avocados doesn’t affect everything else in quite the same way.
The “mistake” made on the 70s, if it was really a mistake, was to then claim that the development of “stagflation” meant that a new type of economics was necessary.
“our economy depends, many would say far too much, on the ready supply of fossil fuels”
about 80% of our primary energy consumption is gas and oil. most of the rest is wind and nuclear. (slightly more wind). Unfortunately it’s not just the evil international cartels that put the price up. Humanity has naturally enough used the easy and therefore cheap to produce big fields first. Before you can use your energy to run your economy it has to be extracted and processed, and the cost of that – and importantly the amount of energy needed to do it – has been gradually rising. Clearly you need less infrastructure when you have a giant oilfield that needs little more than a hole in the ground to access compared with the deep water fields and the tar sands of Alberta. so the available energy is less, because we’ve used a lot of it, and gradually less of that available energy is actually usable, because more is needed to make it useful.
Can we run and grow the economy we have now while energy gets more expensive?
I think we need to stop wasting it – for example on private jets, and working down the list of inessentials – so that we can build more renewable infrastructure and perhaps keep as much of our economy going as essential.
@Michael BG
>If there is spare capacity in the economy then giving people more spending power should lead to economic growth rather than inflation.
Wrong conclusion, more spending power doesn’t equate to economic growth. As we are currently seeing more spending power ie. cash, merely enables people to pay their bills.
Remember Thatcher was successful in part because she created a housing boom by making it easier for people to buy houses… she didn’t give people more spending power.
It is worth a think, indeed, about how energy enables production of value-added, and why the opposite happens.
Energy used for IT to allow knowledge workers to produce value-added is very efficient, especially when not much travel is done. However that value-added is not very easy to confiscate. Low fossil energy use means low energy taxes. Low commercial rents in cities. Few papers sold at commuter stations. Also solar energy can be produced and used at the same place, reducing the need for a national grid and its control points. Local, green, efficient, and hostile to fossil billionaires (but sadly not the tech-bro sort).
Windfall taxes on renewables but not fossil are a canary indicating who benefits now.
But how will you fund the state if hybrid and remote working leads to reduced fossil fuel taxes? Home renewables tax? Telecommunications tax? VAT? But Cost of Living crisis. Tax the rump fossil energy? Wealth tax? Air travel tax? But billionaires. Income tax? But voters. Sugar tax? Maybe not.
The current lot have decided not to decide. It might be worth us deciding a coherent policy for tax, ideally one that does not burn the planet. We can put monetary policy in the Means swim-lane, not the Ends one.
@Peter Chambers
“But how will you fund the state if hybrid and remote working leads to reduced fossil fuel taxes? ”
Land value tax…?
@ Roland,
” .. more spending power doesn’t equate to economic growth.”
This also is the “wrong conclusion”. It should be that it doesn’t *always* equate.
Imagine you are planning to invest in, say, a new restaurant. Would you choose to locate it in an area whose residents had greater or lower spending power?
The sensible approach of any government is to fine tune demand to ensure that resource utilisation is optimised but without overdoing it and creating too much inflation. The regional disparities between areas also need to be considered.
Too much extra spending in the SE of England could be inflationary. On the other hand there is more scope in the less affluent regions to utilise available resources.
Roland,
I was talking about the general rules for what happens when people are given more spending power and I clearly wrote that there could be economic growth or there could be inflation. And there could be a combination of both. The government support towards the cost of energy is not increasing the spending power of people in the sense I meant. It is providing some money towards the money they have to pay for their energy and so reduces the reduction in spending power caused by the increase in the price of energy. The government hasn’t provided enough this tax year to cover the whole increase in the cost of energy and so there is less spending power in the economy which is contributing to the decline in growth and the predicted recession. Next year they are providing even less and that is contributing to the predicted recession after April.
When people purchased their council houses I wonder if they had more spending power because their mortgage payments were less than the rent they paid. I remember a housing boom in 1987 when the tax relief on mortgages were scheduled to change and once the change came, housing prices fell and many people had negative equity.