“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.
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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.