Russia’s invasion of Ukraine and the resulting economic sanctions have exacerbated a cost of living crisis that was already well under way, and the chancellor is under pressure to do more to help at his spring statement on 23 March.
What steps has Rishi Sunak already taken?
Last month, before Russia’s invasion of Ukraine, with energy prices already surging, the chancellor announced a package of measures to help to cushion the blow to households of rising domestic fuel bills.
They included a £200 discount on consumers’ bills in October, which will have to be repaid through their bills over the following five years; and a £150 council tax rebate for homes in bands A to D.
The bill payback scheme has been controversial, with financial expert Martin Lewis calling it a “worrying gamble” which risked unravelling if gas prices did not fall back as expected.
What are the other pressures on consumers’ finances?
Economy-wide inflation was already running at 5.5%, the highest rate in almost 30 years, and is expected to surge higher in the coming months.
With state benefits due to be uprated in April by a much more modest 3.1%, many lower-income households were already likely to see their living standards fall.
At the same time, the 1.25 percentage point increase in national insurance contributions earmarked for health and social care comes into effect in April.
Homeowners on floating-rate mortgages will also have been affected by the Bank of England’s decision to increase interest rates in February, with further rises expected in the coming months.
Thinktank the Resolution Foundation has called it the biggest hit to living standards since the 1970s.
How will the cost of living be affected by the war in Ukraine?
Swingeing sanctions on the Russian economy, including a ban on oil imports from next year, have sent oil and gas prices through the roof.
Gas has traded above £5 per therm, compared with less than £2 a month ago, before partly falling back. It is unclear how much of that increase will persist, and the price cap on domestic energy bills has already been set for the next six months – but at best it suggests prices may remain high for longer than the Treasury feared.
Cutting Russia out of the global economy is likely to push up the prices of other commodities, too.
What more could Sunak do?
Anti-poverty campaigners and thinktanks such as the Resolution Foundation are calling on the chancellor to uprate benefits by more than the planned 3.1%, which given the rate of inflation will mean a substantial decline in living standards for many low-income households.
Sunak cut the taper rate for universal credit in his autumn budget, allowing claimants to keep more of their benefits as their pay increases – he could reduce it further.
Many backbench Tories would love him to ditch the increase in national insurance contributions. That appears unlikely – Sunak and Johnson penned a joint op-ed committing themselves to it at the end of January.
One radical option could be to cut the basic rate of income tax – or to promise to do so in future, something the chancellor is already believed to favour in the run-up to the next general election.
