Rishi Sunak should give out one-off cash payments to millions of people to tackle the cost of living crisis, according to a leading thinktank.
Simple payments of up to £500 would be the most effective solution to soaring inflation in the short-term, said Dr Aveek Bhattacharya – chief economist at the cross-party Social Market Foundation – and would let families decide how best to spend the money.
Office for National Statistics figures released this week showed the cost of living increased at its fastest rate in 30 years last month, squeezing household finances with energy bill rises of an average 50 per cent predicted for April.
One-off payments to people on the lowest incomes is one of several options being considered by the Treasury to ease pressure on household budgets, according to The Sun, though government sources warned it would be complex to set up.
“The coming cost of living crisis leaves millions of households facing severe hardship, and many millions more feeling significant pressure on their finances,” Bhattacharya said.
“It is clear that some action is needed, but the government should avoid the temptation to over-complicate its response and muddle its environmental objectives by subsidising energy.”
Low- and middle-income households should be given a £300 cheque, the economist explained, plus an extra £200 for people on universal credit or legacy benefits.
This package worth £8.5bn would be a better solution than alternatives such as cutting VAT on domestic energy bills or subsidising fuel companies, he said, which risked having an environmental impact by encouraging people to use more energy.
Sunak is reportedly considering a deal with energy companies to lower the price cap, costing around £20bn.
Establishing a US-style stimulus system would also mean the infrastructure would already be in place to respond quickly to future economic crises, Bhattacharya said, and payments could be staggered over a period of months to avoid contributing to escalating inflation.
The Trump administration did not introduce furlough schemes or increase existing benefits to help the US population through the pandemic, instead giving one-off “helicopter money” payments to those on low incomes.
The UK government should make similar direct cash payments to households and “leave them to figure out how best to address their needs,” the economist added.
“A ‘cost of living bonus’, with a higher payment for those on low incomes, would do a lot to help struggling families and clearly demonstrate that the government is on their side.”
Anti-poverty experts also called for emergency payments to meet the immediate needs of families struggling to stay afloat – as well as reforms to the UK’s patchy welfare system.
“For those on low incomes, even small increases risk pulling them deeper into poverty, with the support available through the social security system proving inadequate to protect families from harm,” said Rebecca McDonald, senior economist at the Joseph Rowntree Foundation.
“Urgent and targeted support for people in poverty is essential if families in this country are to bear the shock of this latest rise to their cost of living.”
The government will increase basic benefit rates by 3.1 per cent this April, ministers have announced, well short of the projected 6 per cent inflation Bank of England economists have predicted.
But in the same month, changes to the energy price cap will see fuel bills soar and national insurance payments will increase as the government triggers its new health and social care levy.
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