On 26 May 2022, in a dramatic U-turn, Chancellor Rishi Sunak announced a £15bn package designed to offset the impact of soaring fuel prices, to be funded by a levy on energy companies. For weeks the government had resisted such a move. But under the pressure of Britain’s worst cost of living crisis in modern times, magnified by Ofgem’s announcement that average fuel bills would rise by a further £800 in October, it had no choice. As we saw during the coronavirus pandemic, in the midst of an economic crisis, capitalism will act to save itself – and hang the expense. MARK MONCADA and CAT WIENER report.
The relief package will provide a £400 discount in October to everyone who pays energy bills; this replaces the previously announced unpopular £200 grant that would have had to be paid back over five years. In addition, around eight million of the country’s poorest households – those on means-tested benefits – will receive an additional £650. There is £300 promised for pensioners, and £150 for those in receipt of non-means-tested disability benefits. Part of the cost will be offset by a ‘windfall’ tax on energy companies expected to generate £5bn from oil and gas companies and between £3bn and £4bn from electricity groups. Shell reported a record £7.3bn of profits in the first quarter of the year and BP £5bn over the same period. The move – from the ‘tax cutting Chancellor’ – has raised mutterings among some Conservative backbenchers, with one accusing Sunak of ‘throwing red meat to socialists’, but shares in Shell and BP rose 1% as investors decided the impact of the levy was far less serious than they’d feared. The UK economic adviser to Goldman Sachs, Steffan Ball, suggested the additional support for household spending could even help the UK narrowly avoid a recession.
A key driver of the cost of living crisis has been soaring energy bills. Global wholesale gas prices are up nearly 400%. This situation has put nearly 30 British energy companies out of business. The energy regulator, Ofgem, has protected energy suppliers’ profits by steadily increasing the price cap, which is reviewed every six months, with the new prices coming into effect in April and October. The energy price cap rose by 12% on 1 October 2021 to £1,277 and then again by 54% in April 2022, taking the average household bill to £1,971 a year. On 23 May, Ofgem announced that the price cap would rise to £2,800 in October 2022, increasing average energy bills by a further £800. It will mean domestic prices will have risen by an unprecedented £1,500 in a year. Energy companies warned this would plunge 40% of households into fuel poverty. The Treasury was forced to act.
However, while there is no doubt that the package will come as welcome temporary relief to millions of working class people, it will not tackle the longer term pressures of inflation – rapidly rising food, rent and fuel costs. The Office for Budget Responsibility expects living standards to fall at the fastest annual rate since records began in the mid-1950s – that is, the biggest fall in a single financial year. In the year to April 2022, inflation reached 9%, the highest rate in 40 years, and is expected to hit 10% this autumn.
Wages and benefits are not keeping up. Data collected by the Office for National Statistics in March found that 87% of adults had experienced a rise in the cost of living, mainly of food, gas and electricity and fuel. In the most deprived areas of England, 34% of adults found it very difficult or difficult to pay usual household bills – double the proportion in the least deprived areas. The Food Foundation has found a 57% jump in the number of households cutting back on food or missing meals, with two million adults in Britain no longer able to afford to eat every day. Food bank usage is at an all-time high, with growing cohorts of first-time users. Many ask for food that does not need cooking or refrigerating, saying they cannot afford the energy costs.
The response from Conservative MPs has been insulting, with Rachel Maclean telling the poor to take on more hours or move to a better-paid job; Lee Anderson suggesting food banks users learn to cook and budget properly; and Jackie Doyle-Price proposing people feeling the pinch ‘rent out their granny annexes’. These people live on a different planet.
The ONS reports increasing numbers of people relying on savings and loans to make ends meet. Adults in the most deprived areas were twice as likely to borrow more money or use more credit than they did a year ago to make ends meet and 55% reported that they would not be able to save any money in the next 12 months. People’s homes are increasingly at risk: 34% of renters reported an increase in rent over the last six months and 30% reported difficulty in paying rent, with 6% behind on rent payments. Arrears are consistently higher in the social rented sector than in the private rented sector.
Despite unemployment falling to its lowest level in nearly 50 years in the first quarter of 2022, in-work poverty continues to soar. One in eight people in work were living in poverty before the cost of living crisis hit. In the three months to March, regular weekly earnings saw a real-terms cut of 1.2%. Benefits are at their lowest real-term level in 40 years, with many people still reeling from the effects of the £20 cut to Universal Credit last October.
The new relief package may allow Rishi ‘Rich List’ Sunak to burnish his tarnished credentials with the public, and temporarily divert attention from Downing Street’s shameful lockdown shenanigans, but it will not resolve the deep crisis of the capitalist system and of the working class who are bearing the brunt of it. Only a working class movement that mobilises against relentless austerity, poverty, insecurity and hunger can begin to do that. m
