Rishi Sunak says government can’t stop inflation as clamour grows to help poorest

Chancellor offers tax breaks to business, but shuns calls for new help for families

Rishi Sunak has said there is nothing the government can do to stop rising inflation impacting Britain’s families, as he resists clamour from Conservatives – including former chancellor Kenneth Clarke – for urgent help for those struggling with price hikes.

Instead, Mr Sunak used a speech to the Confederation of British Industry (CBI) to promise tax breaks for business in the autumn Budget, aimed at stimulating sluggish productivity.

As inflation topped 9 per cent for the first time in 40 years, and experts warned that the true rise in living costs was closer to 11 per cent for the poorest families, the chancellor said he was powerless to stem global pressures such as the pandemic, war in Ukraine, and supply chain disruption.

“There is no measure any government could take, no law we could pass, that can make these global forces disappear overnight. The next few months will be tough,” he said.

Meanwhile, the Bank of England governor Andrew Bailey said he felt “helpless” to stop inflation.

Former Tory chancellor Kenneth Clarke made a dramatic intervention, calling for welfare increases for the worst-off and dismissing Mr Sunak’s 5p cut in fuel tax and proposed 1p reduction in income tax as “a complete waste of time”.

“I would have done it in the spring statement, raised universal credit,” he told LBC radio. “The people you’ve got to protect from any fall in living standards if you can are of course the poorest of the poor and the lowest paid.”

Tory backbencher Robert Halfon, chair of the Commons’s Education Committee, said it was a “no-brainer” to put a windfall tax on energy companies to help the poorest households pay their bills.

While he said he recognised government concerns that a levy on North Sea firms could deter investment, he added that “desperate times call for desperate measures and we must do this, and we must do it quickly”.

Treasury Select Committee chair Mel Stride told The Independent it was “definitely” time for the chancellor to implement a windfall levy and “channel savings in government into transfer payments targeted on those most impacted” by soaring prices.

And senior Conservative Sir Bernard Jenkin called for a £13.5bn “summer package” of support for the most vulnerable, including the reinstatement of the £20 uplift to universal credit scrapped by Mr Sunak in October and the abolition of VAT on domestic fuel.

Without immediate action, he warned MPs, “we are creating possibly a worse recession than is already expected”.

Paul Dales, chief UK economist at Capital Economics, added even more pressure when he told The Independent the Treasury should reconsider the effect of its cost of living policies.

“They need to come up with more measures to support those who need it most, not those actions which are going to make their core supporters happier. Prices are rising at a faster rate than incomes. Consumer confidence is already at the second lowest level on record before we’ve even seen inflation peak,” he said. “You need interest rates to be higher to bring inflation back down.”

Mr Dales added that the Bank of England’s key rate ought to rise as high as three per cent in the months ahead.

Several leading economic think tanks, including the Institute for Fiscal Studies (IFS) and the Resolution Foundation, have warned inflation is now disproportionately hitting the country’s poorest families.

The IFS found the bottom 10 per cent of UK households by income faced an inflation rate of 10.9 per cent in the 12 months to April. This was 3 percentage points higher than the inflation rate experienced by the richest 10 per cent.

“Most of this difference comes from the fact that the poorest households spend 11 per cent of their total household budget on gas and electricity, compared to 4 per cent for the richest households,” the IFS said.

“The living standards implications of this economic crisis are huge, but the government has the power to support those hardest hit by bringing forward benefits uprating – something which is needed to prevent this parliament being the worst on record for living standards,” said Jack Leslie, senior economist at the Resolution Foundation.

Jake Berry, chair of the Northern Research Group of Tory MPs, backed the return of the uplift and “something radical on VAT” too. “It’s now or never; now is the time for government to act. Urgency is required, people can’t wait to the November budget to pay their bills,” he said.

But Boris Johnson ordered his MPs to vote down Labour’s demands for an emergency budget to tackle the cost of living crisis, as well as Liberal Democrat proposals to slash VAT from 20 to 17.5 per cent to save the average family £600.

Labour leader Sir Keir Starmer taunted the prime minister in the Commons, saying he “can’t make his mind up” about a windfall tax to help alleviate the cost of energy bills, even though it was “inevitable” he would eventually cave in to pressure.

Sir Keir said that every day that the government holds back on windfall tax on energy companies, it costs consumers £53m in additional energy costs, at a time when BP and Shell alone made £12.37bn profit in the first three months of 2022.

Though Mr Sunak has said a windfall tax remains “on the table”, Treasury sources indicated that no decision on a package of help is likely until the next review of the energy price cap in August, when regulator Ofgem is expected to announce rises of up to £1,000 for the autumn.

Mr Sunak promised the CBI annual dinner in London that “where we can act, we will” on the cost of living crisis, including splashing money in the Budget on tax breaks and allowances designed to reward businesses that invest in capital, innovation and training.

“We need you to invest more, train more, and innovate more,” he told his business audience. “In the autumn Budget, we will cut your taxes to encourage you to do all those things.”

James Smith, research director at the Resolution Foundation think tank, raised questions over the balance of priorities in Mr Sunak’s speech.

“The chancellor is right to focus on restarting growth tomorrow and that more private sector investment is crucial to that,” Mr Smith told The Independent. “But he also needs to make sure he provides targeted support to low- and middle-income families today who are being hit hardest by the inflation surge.”

Shadow business secretary Jonathan Reynolds also critiqued the government’s strategy. “The government’s inability to deal with the cost of living crisis and tax rises at the worst possible time has seen business investment fall in the first quarter this year,” he said. “They should bring forward an emergency budget now with proper support for businesses, including a cut in business rates for small firms and support for energy-intensive industries.”

And Liberal Democrat Treasury spokesperson Christine Jardine said: “Rishi Sunak is promising tax cuts for businesses while hiking taxes for families. It shows he’s completely out of touch with those struggling with soaring bills and fuel prices.

“Every day that goes without any extra support, more people are being plunged into debt and poverty. If the chancellor was serious about helping people cope, he’d announce an emergency tax cut now.”

COST OF LIVING: HOW TO GET HELP

The cost of living crisis has touched every corner of the UK, pushing families to the brink with rising food and fuel prices. The Independent has asked experts to explain small ways you can stretch your money, including managing debt and obtaining items for free.

- If you need to access a food bank, find your local council’s website and then use the local authority’s site to locate your nearest centre.

- The Trussell Trust, which runs many foodbanks, has a similar tool.

- Citizens Advice provides free help to people in need. The organisation can help you find grants or benefits, or advise on rent, debt, and budgeting.

- If you are experiencing feelings of distress and isolation, or are struggling to cope, The Samaritans offers support; you can speak to someone for free over the phone, in confidence, on 116 123 (UK and ROI), email jo@samaritans.org, or visit the Samaritans website to find details of your nearest branch.