The government’s duty is to ensure that the burden of the cost-of-living crisis is spread more fairly

Editorial: The government cannot protect everyone from every financial pressure, but it can require fairness

Rishi Sunak, the chancellor, says he understands the pressure people’s finances are under (Sky News)

There is an air of unreality about the discussion of the “cost-of-living crisis.” It is undoubtedly the case that this year will see most people’s living standards reduced, and there are a number of things happening at the same time in April that will emphasise that fact.

National insurance contributions will rise, by a significant amount, for both employees and employers. The price cap on energy bills will be reviewed, which means bills are likely to rise sharply, as the market price of natural gas is much higher than when the cap was last set. April is also when the law on vaccination for NHS staff comes into effect, which will have a dramatic effect on the living standards of those staff who leave their job without a new job to go to, and possibly a marked effect on the quality of care provided by the NHS for the rest of us.

In addition, other pressures will be felt gradually all year, as retail price inflation eats away at the value of money, and the failure to index income tax thresholds will gradually draw more people into paying tax, and into paying tax at the higher rate. And it is worth noting that people on universal credit have only recently lost the extra £20 a week of spending power that they had during the coronavirus emergency.

Yet the discussion is often predicated on the assumption that the government should “do something about it”. Of course, the government has a direct responsibility in most of these cases, and an indirect responsibility in the case of inflation, but it cannot defy the laws of economics. National insurance is going up because the NHS is in a terrible state and it has to be paid for. Rishi Sunak, the chancellor, was right to borrow vast sums of money during the pandemic to help preserve people’s jobs – a policy that has been remarkably successful – but at some point, the exceptional borrowing has to stop, and the sustainable funding of day-to-day public services has to start. People can argue about when that point should be, but not about whether it has to happen.

The price of natural gas is going up for obscure reasons that seem mostly to do with the unexpectedly strong recovery of the world economy, and a little to do with bad luck; and other prices are also rising mainly because of the shocks of the pandemic, but also in the UK because of Brexit. In neither case – accepting Brexit as a given for the moment – is there a magic solution at the government’s disposal to make prices lower.

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The government’s responsibility, therefore, is not to protect everyone from the “cost-of-living crisis”, but to do what it can to make sure that the burden is spread as fairly as possible. Above all, this applies to the emergency measures taken to get us through the pandemic. It was right to borrow that money, and fortunate that the crisis came at a time of low interest rates, but it was always going to impose a cost on the whole country afterwards – a cost that requires a common sacrifice.

Inevitably, there is the question of timing, and we suspect that the government may wish to delay the raising of the cap on energy bills (and it may even try to find some flexibility about NHS staff vaccinations). But now is probably the right time to raise taxes to meet the specific cost of paying to start work on the NHS backlog created by the pandemic.

That does not mean that national insurance was the best way of raising revenue. We would have preferred a more honest rise in income tax, which covers all forms of income including rent and interest, combined with a mansion tax on more expensive properties.

The government’s tax rise is broadly progressive, despite Labour’s misleading claims to the contrary. It raises more, as a share of people’s income, from the rich than from the poor. But it could and should have been even more progressive. It is the government’s duty, at a time of common sacrifice, to make sure that the burden falls more heavily than currently proposed on those better able to bear it.