Economy Update — House of Lords, 2022-05-26
Topic: Macroeconomics
Raymond Collins (Labour, Centre-left): My Lords, I am grateful to the noble Baroness for giving us the opportunity to respond to the Statement. These are incredibly difficult times for people across our nation. That much has been clear for several months, so the obvious question is: why is action being taken only now? Many will see this as an attempt to spare the Prime Minister’s blushes after the publication of the Gray report, which we debated last night, rather than a sign that this Government are on their side Inflation is running at a 40-year high and is yet to peak. According to recent analysis, the inflation gap between the richest and poorest is growing, meaning that low-income households are bearing the brunt of the cost of living crisis. As the Chancellor acknowledged in his Statement, we expect the energy price cap to rise by a further £800 in October, and this will take energy bills to their highest level since records began. This crisis is hurting everybody, but it will hit those at the bottom of the income distribution the hardest. The Institute for Fiscal Studies predicts that by October the poorest 10% of households will experience an inflation rate of 14%. By contrast, it will be 8% for the richest 10%. That situation is neither fair nor sustainable The various initiatives announced in the Statement are welcome—but of course we would say that as we have been calling for an energy windfall tax for nearly five months. Energy bosses themselves have admitted that they do not know what to do with the unexpected surge in their profits. They have been clear that a windfall tax would not be a disincentive to invest in their operations, and they are already ramping up their investment plans and have money to spare. They can comfortably do both. Despite growing cross-party consensus and the sector’s invitation to act, the Government whipped against a Commons vote on a windfall tax just nine days ago. Of course, the announcement of this temporary targeted energy profit levy is better late than never, but each day of dither and delay has caused unnecessary stress for households and their finances We welcome the targeted support for millions of the most vulnerable households across the UK; a significant weight will be lifted when these cost of living payments arrive over the coming months. But this too could have been announced long ago, providing quicker help with April’s cost-cap increase. In the light of Ofgem’s recent announcement, we are also glad that the Government have gone further on universal support. Crucially, the Chancellor has finally dropped the ill-conceived loan element of that scheme. It was wrong to adopt that option and the public immediately saw through his spin. The reduction will no longer be recouped through other increases to bills over the next few years—another Labour policy in action One decision ducked by Mr Sunak was on cutting VAT on energy bills. This could have been delivered overnight had the VAT cut been adopted when Labour proposed it last October. It is not the case that many would have had a more comfortable winter? We know that there is growing support for that policy on the Conservative Back Benches, in another place at least. It was even previously touted by the Prime Minister—but I suppose we should not be surprised that he did not keep his word. So can the Minister tell us whether the Treasury will at least be keeping the VAT card up its sleeve should the economic conditions driving increased bills not improve? Can she also confirm whether the Treasury will publish details of how this package is being funded beyond the new windfall tax? Finally, can she give an indication of when enabling legislation for the windfall tax will be brought forward In conclusion, we welcome the Government’s U-turns, but there is much more work to be done if people are to be protected from similar price shocks in the future. Given the Government’s willingness to listen to Labour’s ideas, I hope we will soon see aspects of our wider energy plan—for example, rapid action on home insulation and the doubling of onshore wind capacity—put into action.