Economic Update — House of Commons, 2022-02-03
Topic: Macroeconomics
Rishi Sunak (Conservative, Centre-right): The UK’s economic recovery has been quicker and stronger than forecast. In the depths of the pandemic, our economy was expected to return to its pre-crisis level at the end of 2022; instead, it got there in November 2021, a full year earlier. Unemployment was expected to peak at nearly 12%; instead, it peaked at 5.2% and has now fallen to just over 4%, saving more than 2 million jobs. With the fastest-growing economy in the G7 this year, with over 400,000 more people on payrolls than before the pandemic, and with business investment rising, it is no wonder that borrowing is set to fall from £320 billion last year—the highest ever peacetime level—to just £46 billion by the end of this Parliament. As we emerge from the depths of the worst recession in 300 years, we should be proud of our economic record. The economy is stronger because of the plan we put in place, because of the actions we took to protect families and businesses, and that plan is working However, for all the progress we are making, the job is not yet done. I know that right now, the No. 1 issue on people’s minds is the rising cost of living. It is the independent Bank of England’s role to deliver low and stable inflation, and the Governor will set out its judgments at midday today. Just as the Government stood behind the British people through the pandemic, so we will help people deal with one of the biggest costs they now face: energy. The energy regulator Ofgem announced this morning that the energy price cap will rise in April to £1,971, an increase of £693 for the average household. Without Government action, this would be incredibly tough for millions of hard-working families, so the Government are going to step in to directly help people manage those extra costs Before I set out the steps we are taking, let me explain what is happening to energy prices and why. People’s energy bills are rising because it is more expensive for the companies that supply our energy to buy oil, coal and gas. Of the £693 increase in the April price cap, around 80% comes from wholesale energy prices. Over the past year, the price of gas alone has quadrupled, and because over 85% of homes in Britain are heated with a gas boiler and around 40% of our electricity comes from gas, this is hitting households hard. The reasons gas prices are soaring are global: across Europe and Asia, a long, cold winter last year depleted gas stores. Disruption to other energy sources, such as nuclear and wind, left us relying more than usual on gas during the summer months. Surging demand in the world’s manufacturing centres in Asia, at the same time that countries such as China are moving away from coal, is further increasing demand for gas, and concerns about a possible Russian incursion into Ukraine are putting further pressure on wholesale gas markets. So prices are rising The price cap has meant that the impact of soaring gas prices has so far fallen predominantly on energy companies—so much so that some suppliers that could not afford to meet those extra costs have gone out of business as a result. It is not sustainable to keep holding the price of energy artificially low. For me to stand here and pretend we do not have to adjust to paying higher prices would be wrong and dishonest, but what we can do is take the sting out of a significant price shock for millions of families by making sure that the increase in prices is smaller initially and is spread over a longer period Without Government intervention, the increase in the price cap would leave the average household having to find an extra £693. The actions I am announcing today will provide, to the vast majority of households, just over half of that amount—£350. In total, the Government are going to help about 28 million households this year. Taken together, this is a plan to help with the cost of living worth about £9 billion We are delivering that support in three different ways. First, we will spread the worst of the extra costs of this year’s energy price shock over time. This year, all domestic electricity customers will receive an up-front discount on their bills worth £200. Energy suppliers will apply the discount on people’s bills from October, with the Government meeting the cost in full. That discount will automatically be repaid from people’s bills in equal £40 instalments over the next five years. This is the right way to support people while staying on track with our plans to repair the public finances Because we are taking a fiscally responsible approach, we can also provide more help faster to those who need it most—the second part of our plan. We are going to give people a £150 council tax rebate to help with the cost of energy in April, and this discount will not need to be repaid. I do want to be clear with the House that we are deliberately not just giving support to people on benefits. Lots of people on middle incomes are struggling right now too, so we have decided to provide the council tax rebate to households in bands A to D. This means that about 80% of all homes in England will benefit The third part of our plan will provide local authorities with a discretionary fund of nearly £150 million to help those lower-income households who happen to live in higher council tax properties, and households in bands A to D who are exempt from council at all We are also confirming today that we will go ahead with existing plans to expand eligibility for the warm home discount by almost a third, so that 3 million vulnerable households will now benefit from that scheme. That is not all we are doing to help vulnerable households. We are providing £3 billion over this Parliament to help more than half a million lower-income homes become more energy efficient, saving them on average £290 a year; increasing the national living wage to £9.50 an hour in April—a rise of over £1,000 for 2 million low-paid workers; and providing an effective tax cut for those on universal credit, allowing almost 2 million households to keep an average of £1,000 per year The payment through energy suppliers will apply across England, Wales and Scotland. Energy policy is devolved in Northern Ireland, with a different regulator, and the Government do not have the legal powers to intervene, but we will make sure that the Executive are funded to do something similar, with about £150 million for Northern Ireland through the Barnett formula next year. Because the council tax system is England-only, total Barnett consequentials of about £565 million will be provided to the devolved Administrations in the usual way I know that some in this House have argued for a cut in VAT on energy. However, that policy would disproportionately benefit wealthier households. There would be no guarantee that suppliers would pass on the discounts to all customers, and we should be honest with ourselves: this would become a permanent Government subsidy on everyone’s bills, a permanent subsidy worth £2.5 billion every year, at a time when we are trying to rebuild the public finances. Instead, our plan allows us to provide more generous support, faster, for those who need it most, providing 28 million households with at least £200, and the vast majority receiving £350. It is fair, it is targeted, it is proportionate: it is the right way to help people with a spike in energy costs Today’s announcements are just one part of the Government’s plan to tackle the country’s most pressing economic challenges. It is a plan for growth, with record investment in infrastructure, innovation and skills; a plan to restore the public finances, with debt falling by the end of this Parliament; a plan to cut waiting lists and back the NHS with £29 billion over three years, and with a permanent new source of funding; and, with the measures that I have announced today, a plan to help with the rising cost of energy, with £350 more in the pockets of tens of millions of hard-working families. That is our plan to build a stronger economy, not just today but for the long term, and I commend it to the House.