JBank of England Governor Andrew Bailey has warned that Britons are facing a “historic shock to real incomes”, with energy price rises this year bigger than any year in the 1970s. The disastrous impact this crisis will have on people’s livelihoods is clear: 600,000 people could fall into poverty and millions will be unable to afford basic necessities. But so far the chancellor, Rishi Sunak, has only introduced half-hearted measures.
As we face an epochal challenge to living standards and energy supplies, there are already policies in place elsewhere that Sunak could learn from: countries like Germany and Ireland are doing more to protect the most vulnerable, do more to shift to energy-saving measures. and do more to wean ourselves off fossil fuels.
This year, the German government has provided a boost of €200 for recipients, as well as an additional maintenance allowance of €100 and at least €270 for people receiving housing assistance, alongside a lump sum payment of €300 (pre-taxation) to all employees. A low-income family with two children could receive at least €657, plus a possible heating subsidy of €490. Together with other measures, this could make up for more than two-thirds of the cash crunch caused by rising energy prices. By comparison, the average low-income British family would receive less than half that amount (£270, or around €325) plus help with bills that would have to be paid back.
Elsewhere, France and Italy have taken far more decisive action than the UK to limit the energy price rises that households face. This was done through measures such as the obligation for the public energy company to sell electricity well below the market price and reductions in electricity taxes.
Equally eye-catching are the examples of innovative policies to encourage less energy consumption. As gas prices rise, public transport is one of the most effective ways to reduce costs to the economy. For three months, Germany offers all citizens to use regional transport for only €9 per month. Some US cities have also shown that reduced or free public transport fares can increase usage. And New Zealand is halving public transport fares for three months in response to high fuel prices. France has been experimenting with free public transport since 2018 and Paris has just lowered the price of its tickets.
This is in addition to European countries’ support programs for home insulation. Ireland, for example, has just adopted a subsidy policy which provides up to 50% of the costs of a major renovation. On the other hand, the United Kingdom is far from having the same ambition.
All of these international examples stand in contrast to Sunak’s spring statement in which he announced almost no targeted support for low incomes. Analysis from the Institute for Public Policy Research think tank, where I work, shows that low-income households are still facing an average cash crunch of £320 this year, with some facing a hit of £700 £. It would leave many of the UK’s poorest in poverty with no choice but to run out of essentials, such as food or home heating. As millions of households need to cut spending, this will also dampen economic growth.
Surprisingly, what the Chancellor announced was heavily biased towards high earners. We estimate that, on average, high-income households received four times more support than low-income households.
These were Sunak’s political choices, but it is not too late to change course. Its first priority should be to establish a livelihood guarantee for low-income people. This means ensuring that their standard of living does not fall below what it was last year.
The government could have achieved this by increasing benefits in line with inflation, to ensure that people’s income stays in line with the price of the goods and services they need. This could be combined with an increase in child benefits and additional measures to ease the pressure on household bills. With this, the Chancellor would virtually maintain low- and middle-income living standards at a cost of £9billion, just £1.5billion more than he has spent on his policy package. poorly targeted.
It could also learn from other countries’ energy-saving measures. IPPR offered large-scale investments in home insulation, allocated through an easy-to-use ‘GreenGo’ system. This would provide a one-stop shop for people to transition to cleaner transport, housing and consumption, with an initial focus on low-energy homes, which need the most help.
All of this is quite doable and affordable. For example, our proposed package to almost entirely protect low and middle incomes could be largely funded by a windfall tax on energy companies – a type of tax the EU is set to approve soon.
So don’t let the government convince you that their hands are tied, because this is a crisis of global dimensions. In fact, it is precisely by looking abroad that we can see that better policy choices are possible.