Energy Price Guarantee. Freezing consumer energy prices at current levels or below has become a key policy demand from all sides of the political spectrum over recent months (see our recent New Economy Digest where we have examined various proposals to freeze the energy price cap). Pressure on the government to take action intensified over the summer as Ofgem announced that the energy price cap would increase to £3,549 per year from October. Last week, after mounting pressure, the new Prime Minister Liz Truss announced an ‘Energy Price Guarantee’ package which will limit average annual household bills to £2,500 over the next two years. The plan also involves retaining the £400 energy bill discount as well as a temporary suspension of green levies, bringing down bills by a further £150.
Is it enough? The Energy Price Guarantee caps bills at £2,500 per year, which is still significantly higher than last year’s cap of £1,138. Some have criticised the plan for not targeting support to lower income households. The Institute for Fiscal Studies outlines how over half of the £60 billion earmarked for households will go to the top half of the income distribution. Consumer finance expert Martin Lewis also highlighted that the plan “means those with the biggest bills (often the wealthiest) gain the most”. Through the case study of one family, the Guardian explores how households will still suffer this winter despite the Energy Price Guarantee.
Funding the freeze. The Telegraph reports that the government is still unclear about the exact cost of the scheme, and may only announce the cost for an initial period of a few months. The plan is expected to cost around £150 billion, however this could be more depending on the wholesale gas market. For comparison, £70 billion was allocated to the pandemic furlough scheme. It will be funded by borrowing rather than an extension of the windfall tax on energy companies as many have called for, however this has not been outlined in any great detail. The Institute for Fiscal Studies’ Paul Johnson said: “Given the scale of the package, the failure to provide any official sense of a costing was extraordinary, and deeply disappointing”.
Free basic energy? An alternative plan has been put forward by the New Economics Foundation, who argue that a short-term price freeze should be superseded by tariff reform including a system of free basic energy. Under this system households would be entitled to a basic allowance of free energy, with additional usage charged in rising block tariffs. NEF’s Alfie Stirling argues that this would protect the lowest income households and discourage excess energy usage, while costing the government less than the price freeze. NEF has also proposed a new energy element of universal credit to ensure more targeted support.
Recession? The UK economy stagnated in the three months to July as the cost of living crisis hit household budgets and business activity, according to ONS figures released this week, with Sterling falling to a 37-year low. “The disappointingly small rebound in real GDP in July suggests that the economy has little momentum and is probably already in recession,” said Paul Dales, economist at Capital Economics.
The death of Queen Elizabeth II. Existing predictions of a recession have been exacerbated by the additional bank holiday that has been announced on the day of the Queen’s funeral. Closed businesses on the bank holiday along with postponed events during the period between the Queen’s death and her funeral may “be enough to tip the balance in favour of a second successive quarter of negative growth”, says the Guardian’s Larry Elliot and Richard Partington.
Interest rate rise delayed. The Bank of England’s Monetary Policy Committee, which is expected to raise interest rates for the seventh consecutive time, has postponed its decision to 22 September due to the period of national mourning in light of the Queen’s death.
Quantitative easing. Quantitative easing could be the answer to the cost of living crisis, argue Professor David G Blanchflower, Professor Lord Sikka and Professor Richard Murphy in a letter in the Financial Times. Such an intervention should be complemented by cuts in interest rates, energy price reform, nationalised energy supply and investment in new technologies, they argue.
TUC submission to the ILO. The TUC has written a submission to the ILO committee of experts, arguing that the UK Government has shown a consistent record of failure to respect the labour rights conferred by the ILO Conventions 87 and 98. It raises issues including the introduction of legislation that allows businesses to supply agency workers to replace striking workers and proposals to ban strikes by different unions in the same workplace within a set period.
New Living Wage Foundation research. 78% of the UK’s lowest paid workers say that they are facing the toughest financial squeeze of their lives, according to new research by the Living Wage Foundation. More than half of workers polled, who are all on less than the real living wage, had used foodbanks in the past year while 42% reported regularly skipping meals for financial reasons.
Big Bung 2.0 The new Chancellor, Kwasi Kwarteng, is apparently considering scrapping the EU-wide cap on bankers bonuses imposed after the 2008 financial crash as part of his “Big Bang 2.0” approach to City regulation. Scrapping the cap would not be politically wise for the Government, argues Larry Elliot, and instead a "political gift to Labour and to unions, since it feeds into a clear them-and-us narrative". In the FT, Helen Thomas argues that scrapping the cap will deliver very few tangible benefits to the City.
Average income data. The living standards of average Slovenian households will overtake average British households by 2024, and the average Polish family will move ahead before the end of the decade, according to new data presented by the FT’s John Burn-Murdoch. The piece demonstrates the extent of living standard inequality in the UK and the US, with households at the top enjoying some of the highest living standards in the world, while those in the middle and the bottom fall behind other developed countries.
Improving the Manchester PRS. IPPR North has developed proposals for improving the quality of the Private Rented Sector (PRS) in Manchester which it argues is needed alongside the building of new social homes to improve the quality and stability of the city's housing market. Proposed solutions include developing a financial model for property improvement and a "trailblazer" devolution deal that puts housing first and supports the implementation of a property improvement model.
The green steel race. The UK is trailing behind other European countries in the "international race to green the steel industry", according to new research by Common Wealth. It finds that "while the UK government pledged £250 million as part of the Clean Steel Fund ahead of the 2019 General Election, funding has yet to be distributed years later, despite repeated calls on the government to act".
A failure to invest. Many of the UK's problems are related to a failure to invest, says LSE Professor Neil Lee. Many of the country's economic problems can be traced back to low investment in R&D, education, business, insulation and more, he argues.