Rishi Sunak is to announce measures to tackle the cost of living crisis today. He will supposedly spend £10 billion. He will also announce a windfall tax on energy companies that will collect considerably less and be collected some time in the future, proving that (as always) spend comes before taxation.
It seems likely that some previously announced arrangements e.g. the enforced loan arrangements, will be scrapped. I suspect that this means the package will actually mean the package will be worth somewhat less than £10 billion in reality.
The likely replacement is some form of grant to lower income households. I sincerely hope a better measure of who these are than the council tax band of the property that they occupy will be found.
I suspect that the targeting of this will be hopeless. Increasing pensions and universal credit will be useful, but there will still be massive gaps that will be unaddressed. Sunak has form on this from the Covid era. Headlines matter much more to him than detail. He seems indifferent to the suffering his inattention to that detail creates.
What I can say with certainty is that package will be hopelessly inappropriate. Giving grants does not stop the inflation. In that case its impact, via increasing RPI and spillover into other prices and costs, like student loan interest, continue. This is precisely why I have kept saying prices themselves must be cut by reducing taxes on energy.
The quantum of the package is also too small. Even if it all got to the families facing fuel poverty they will only get £800 or so a year, but fuel costs alone will have risen by £1,500 by the autumn. And wage rises will not compensate by a long way, and they (which most commentators seem to forget when discussing the percentages on this issue) are taxed.
In the meantime, the failure to tackle the actual price rises will let the Bank of England persist with its ruinous interest rate increase policy until it is too late to prevent the harm it will cause.
The failure to come today is likely then to be fivefold.
First, too little will be spent on a feeble gesture to seek to deflect attention from Partygate.
Second, this spend will be poorly targeted.
Third, it will not stop the knock on effects of inflation.
Fourth, the claim that action is constrained by the inability to raise money is wrong. The Bank of England wilfully returned much more QE funding than will be spent today to financial markets in March, wholly unnecessarily, meaning no such constraint exists.
Fifth, the root cause of the problem - which is exploitation - will not really be addressed.
It is all likely to be a failure in the making. Sunak's glory days at the Despatch Box are long gone.
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Agreed. You can bet that those, like an elderly relative, who depend on domestic heating oil in rural areas will likely be ‘missed’ by any package. As Tim Watkins says, not addressing the standing charge issue, I bet. https://consciousnessofsheep.co.uk/2022/05/25/in-brief-hot-air-and-false-optimism/
It wont be a windfall tax
It will spent directly from the treasury and made to look to the public as a “Look we do actually think that businesses should be paying their fair share, we do care, disingenous crap”. and the public (Largely) will swallow it, again
Utter Nadir in Politics
I see from the Guardian website that the IFS is talking up the need for tax increases to offset the ‘inflationary dangers’ produced by any direct relief to people’s pockets.
This is surely idiocy of a very high order – and on at least two grounds –
(a) the relief measures are not going into the public’s pockets to be spent willy-nilly on the local corner shop – but straight into their capacity to pay the inflationary bills demanded by the power companies whose profits are now to be subsidised
and
(b) there is zero sign that any prices are being driven up by excessive amounts of spending chosen by a profligate over-paid public.
With ‘economic thinking’ like this we are clearly in the metaphorical madhouse with the insane in charge.
I disagree
Tax increases for the wealthiest are required because they are helping fuel inflation right now
But, will Sunak restrict such tax increases to the wealthiest?
He won’t do them
I am puzzled by your response, Richard.
I thought it was your view that there is virtually no inflation being caused by a too freely spending public, as there are next to no signs of most people having the surplus income whose disposal could be raising prices. And I agree with that entirely.
Surely to press for tax rises to counter spending led inflation is therefore inappropriate – except if that was taxation aimed specifically at the rising wealth of the richest. And I also agree with that. As you also say here, Sunak is most unlikely ever to do that.
Thus for the IFS to raise the notion of increased axation to prevent inflation is – in the real world terms of having Sunak in charge – nuts. Or… where have I got that wrong?
I have never said that
I have always maintained that the rich do have too much money and are as a result assisting inflation
The need us for targeted policy. They are one of the targets
General tax rises would be nuts
It will be just enough to take attention away from ‘Partygate’
Sunak is a fanatical neoliberal. We can expect nothing other than what you are predictiing. I’m not convinced that he actually unverstands how the national economy works. He and Johson deserve each other.
V x M = P x T
Stop me if I’m getting too technical for you?
A little knowledge is a very dangerous thing, from which you are very clearly suffering
Now use the real world data and explain why in reality QE failed to produce inflation
“Now use the real world data and explain why in reality QE failed to produce inflation”
It has with a lag.. too much money around given the goods available. Inflation cannot be just a supply side issue. Just because it doesn’t fit your dogma doesn’t mean it isn’t right,
You call 11 years a lag?
Pull the other one…..
The Bank of England calculator reports that inflation from 2008 to 2019 averaged 3%.
Which set of years are you using when asserting that inflation was 0% for the pre-pandemic QE period?
3% is modest inflation
No reasonable person would want less
And the average was inflated by exploitation of commodity prices in 2011 – 2012, which exploitation is also the cause now
You are wasting my time, and your own
Surely V x M = P x T is just the old-fashioned formulation of of Irving Fisher’s equation of exchange? How quaint. So many serious problems, from the relationships between independent variables, through the constancy of the values of the variables, notably over the long term. Forests had been felled just to provide the literature of criticism. Fisher’s conception of money (pre-WWI) was applied to a much less complicated monetary world than now exists; money itself is now much more elusive, protean and relativistic (hierarchy of money, shadow banking, digitisation); and the direct application of the equations to real world ‘money’ with any degree of accuracy is doubtful at best. Even the legacy equations of old-fashioned monetarism have had makeovers in order to spruce up the antiquated superstructure – though several generations. Nothing much to see here.
Quite so….
Hi Richard, Article in today’s Guardian 13.43 James Meadway “Progressive Economy Forum”
“Sunak’s package fails to tackle the true cause of UK inflation: shameless profiteering.
Warm regards,
JF.
I agree that this is a major cause of inflation
I have been saying so here for some time
It looks like the so called “windfall tax” will be avoidable by the oil and gas companies “investing” by increasing domestic production. I was wondering how he got it past his bosses in the industry. That explains it.
I am afraid that Sunak has àll the qualities he needs to get on this world.
An empty vessel able to be used as a puppet to say and do outrageous things by his back seat driving handlers.
And that is the nicest way that I can put it.
The real matter is perhaps being overlooked. They are going to borrow. £10Bn? £12Bn? More? Neoliberalism is on its knees. Again. It has no answers to the problem.
The inability of the “the Market” to cope with any of the different, endless, unforeseen, relentless crises that are the real facts of economic life; the Crash, Covid, Brexit, War is there for all to see.
QED.
I came across this. Republicans in Congress are trying to hold this up. If they win the mid terms, they will.
https://www.theguardian.com/business/2022/may/24/historic-global-tax-deal-on-multinationals-delayed-until-2024