Arab Press

بالشعب و للشعب
Saturday, May 31, 2025

Cost of living: Chancellor's aid will help you and make things worse at the same time

Cost of living: Chancellor's aid will help you and make things worse at the same time

Let's begin with perhaps the most important question: will this make a difference?

The short answer is yes. The stimulus the chancellor announced today is big - very big. It will affect all households and some - especially those on lower incomes, benefits and many pensioners - will get outsized one-off cash payments.

For the "average" household, such as it is, the fact that the energy bill rebate has been doubled will mean bills are no longer in totally unprecedented territory; instead they are only likely to hit the highest level since the early 1980s.

In short, this package will not prevent the coming year from feeling painful; however, it will certainly mean it is less painful in the short run than it would otherwise have been.

And the fact that a lot of this money is dedicated to lower income households who are hardest hit by the cost of living crisis is especially important. For one of the iniquities of inflation is that it is a very regressive economic phenomenon: it tends to affect the poorest the most.

This latest package is far better tailored to this problem than the deficient one introduced by the chancellor earlier this year.

Many would say that this is the very package Rishi Sunak should have produced in the spring statement back in March, and they have more than half a point.

They might point out, too, that contrary to what he said on Thursday, the outlines of what we are currently facing were already clear back then. But no point in dwelling on the past. The package is generous and progressive, and will help many households in the short term.

The big figures in today's package/budget are primarily one-off payments but it's also important to note there is a longer-term element in there.

For the chancellor also announced that next year's benefits and pensions will be increased in line with the inflation figure as of September. This is one of those throwaway lines which could easily be glossed over, but let's ponder it for a moment.

Inflation is likely to peak around this autumn - probably in October - at over 10%. In other words, September's inflation is likely to be very high. So the chancellor is planning to increase benefits and pensions a lot.

It's hard to know how much this will cost, in part because we don't yet know what inflation will be by then but just as if not more importantly because he has decided to announce all this stuff outside of a traditional budget, so isn't under any obligation to show his workings.

But my broad-brush calculation suggests this uprating could end up costing as much as £25bn.

Now consider that the complete package announced today was £15bn and you get a sense of what we're talking about.

This is, again, a lot of money.

Some, including Mr Sunak, will argue that this is the right decision given the crisis the UK is currently facing. However it's worth noting that this is a very different kind of message to the one he was attempting to give us only a few weeks ago.

For months, he has underlined that we should be careful about borrowing extra money. Today's plans involve borrowing at least another £10bn.

For months he has warned about the risks of inflation. His speech today began with a long section about the risks of rising prices. Yet this package, all told, looks very inflationary indeed.

It will put a lot more money into pockets and people will spend more which in turn will push up prices. So far from combating inflation, it makes the Bank of England's job even tougher, pushing up demand in the economy significantly.

To some extent this just underlines the difficulties of policymaking right now.

Energy markets are sending us a message: there is not enough supply of energy to satisfy our demand for the stuff. One response is to allow people's spending to decrease so demand matches supply; but that involves a recession.

Another response is to pump up demand. But that poses the risk of embedding inflation in the economy, making it even more difficult to reduce. It also makes it far more likely that the Bank will have to raise interest rates in the coming months.

Things are already bumpy. This package, necessary as it might feel, may make things even bumpier, especially once the short term sugar rush of those giveaways wears off.

Newsletter

Related Articles

Arab Press
0:00
0:00
Close
Meta and Anduril Collaborate on AI-Driven Military Augmented Reality Systems
EU Central Bank Pushes to Replace US Dollar with Euro as World’s Main Currency
European and Arab Ministers Convene in Madrid to Address Gaza Conflict
Head of Gaza Aid Group Resigns Amid Humanitarian Concerns
U.S. Health Secretary Ends Select COVID-19 Vaccine Recommendations
Trump Warns Putin Is 'Playing with Fire' Amid Escalating Ukraine Conflict
India and Pakistan Engage Trump-Linked Lobbyists to Influence U.S. Policy
U.S. Halts New Student Visa Interviews Amid Enhanced Security Measures
Trump Administration Cancels $100 Million in Federal Contracts with Harvard
SpaceX Starship Test Flight Ends in Failure, Mars Mission Timeline Uncertain
King Charles Affirms Canadian Sovereignty Amid U.S. Statehood Pressure
Iranian Revolutionary Guard Founder Warns Against Trusting Regime in Nuclear Talks
Netanyahu Accuses Starmer of Siding with Hamas
Calls Grow to Resume Syrian Asylum Claims in UK
UAE Offers Free ChatGPT Plus Subscriptions to Citizens
Denmark Increases Retirement Age to 70, Setting a European Precedent
Iranian Director Jafar Panahi Wins Palme d'Or at Cannes
Israeli Airstrike Kills Nine Children of Gaza Doctor
Lebanon Initiates Plan to Disarm Palestinian Factions
Iran and U.S. Make Limited Progress in Nuclear Talks
Trump Administration's Tariff Policies and Dollar Strategy Spark Global Economic Debate
OpenAI Acquires Jony Ive’s Startup for $6.5 Billion to Build a Revolutionary “Third Core Device”
Turkey Weighs Citizens in Public as Erdoğan Launches National Slimming Campaign
UK Suspends Trade Talks with Israel Amid Gaza Offensive
Iran and U.S. Set for Fifth Round of Nuclear Talks Amid Rising Tensions
Russia Expands Military Presence Near Finland Amid Rising Tensions
Indian Scholar Arrested in Crackdown Over Pakistan Conflict Commentary
Israel Eases Gaza Blockade Amid Internal Dispute Over Military Strategy
President Biden’s announcement of advanced prostate cancer sparked public sympathy—but behind closed doors, Democrats are in panic
Mount Lewotobi Laki-Laki Erupts Again, Spewing Ash Cloud over Flores Island
Indian jet shootdown: the all-robot legion behind China’s PL-15E missiles
The Chinese Dragon: The True Winner in the India-Pakistan Clash
Australia's Venomous Creatures Contribute to Life-Saving Antivenom Programme
The Spanish Were Right: Long Working Hours Harm Brain Function
Did Former FBI Director Call for Violence Against Trump? Instagram Post Sparks Uproar
US and UAE Partner to Develop Massive AI Data Center Complex
Apple's $95 Million Siri Settlement: Eligible Users Have Until July 2 to File Claims
US and UAE Reach Preliminary Agreement on Nvidia AI Chip Imports
President Trump and Elon Musk Welcomed by Emir of Qatar Sheikh Tamim with Cybertruck Convoy
Strong Warning Issued: Do Not Use General Chatbots for Medical, Legal, or Educational Guidance
NVIDIA and Saudi Arabia Launch Strategic Partnership to Establish AI Centers
Trump Meets Syrian President Ahmad al-Shara in Historic Encounter
US and Saudi Arabia Sign Landmark Agreements Across Multiple Sectors
Why Saudi Arabia Rolled Out a Purple Carpet for Donald Trump Instead of Red
Elon Musk Joins Trump Meeting in Saudi Arabia
Trump says it would be 'stupid' not to accept gift of Qatari plane
Quantum Computing Threatens Bitcoin Security
Michael Jordan to Serve as Analyst for NBA Games
Senate Democrats Move to Censure Trump Over Qatar Jet Gift
Hamas Releases Last Living US Hostage from Gaza Amid Ongoing Conflict
×