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The Cost of Living Class War

Research shows that the poorest families are set to see their energy bills rise 7.5 times faster than the richest – proof that the cost of living crisis is entrenching the vast inequality that already scars modern Britain.

Since the last election, the disposable incomes of the poorer half of the country have dropped by £110, while increasing by £3,300 for the richest five percent. (Creatista / Getty Images)

Two numbers really capture the ongoing cost of living fiasco. The first is the £833 rise in energy bills that British consumers are now facing compared to last September. The second is the £350 the chancellor is offering as financial aid for British households to weather this storm.

It doesn’t take much to do the maths here and notice that the scale of the crisis and that of the response are pathetically mismatched. The prime minister, characteristically tone deaf, backed Rishi Sunak by calling it a ‘mega package’ of support measures ‘not seen in recent memory’.

Even before energy regulator Ofgem announced a whopping 54 percent rise in energy bills from April, millions of families were struggling to pay for their essentials, with dependence on food banks at new highs. The New Economics Foundation (NEF) found that since the last election, the disposable incomes of the poorer half of the country have dropped by £110, while increasing by £3,300 for the richest five percent.

We also found that the poorest families will see their energy bills rise 7.5 times faster than the richest 10 percent. The government has decided to clobber families with an additional £900 rise in bills, months after slashing benefits by £20 a week. The cost of living in the UK is less a crisis than a scandal—a litany of policy failures over the last decade that have left us vulnerable to economic turbulence.

Some of the roots of this scandal can be traced back to the government’s 2015 culling of legislation and regulation on energy efficiency and renewable energy, as part of plans to ‘cut the green crap’. The combined effect of such short-sighted measures added £2.5 billion to household energy bills.

One policy that was eliminated was the zero-carbon homes standard, which would have required all new homes to emit net-zero carbon dioxide from 2016. If the government had held builders to that standard, households could be saving £200 on their energy bills today.

But this scandal extends beyond scrapping vital regulations—to the UK government effectively subsidising fossil fuel companies. The treasury receives a mere $2 per barrel of oil produced in the North Sea compared to the $21 the Norwegian government gets for oil produced in Norway. A refusal to tax oil and gas companies like BP that are currently raking in billions in profits is a gross mismanagement of finite natural resources and encouraging cronyism from fossil fuel companies.

Today’s soaring energy prices aren’t totally under government control—gas prices have increased globally due to pandemic-related restrictions in supply. But our neighbours in Europe have responded much more generously.

France, Germany, Italy, and Spain have all introduced some form of a windfall tax on fossil fuel companies, with some soaking up most of the cost of the rise in energy bills for their residents. Yet our government scandalously tries to mitigate it through insufficient measures.

Rishi Sunak’s choice to offer council tax rebates and a £200 loan to all households is too little too late. Upcoming NEF analysis will show that, despite the new support package, the poorest households will still become poorer.

The council tax rebates are also poorly targeted, with the Resolution Foundation finding that 10 percent, or 640,000, of the poorest families are not eligible for these rebates. NEF has previously argued that a more targeted support package, delivered through the benefits system, could bolster the incomes of the poorest. Yes, the government should support middle-income households, but leaving millions of low-income families in the lurch is scandalous.

In fact, independent analysts have already rung alarm bells that another round of price cap changes, currently scheduled for October, could see bills rise on average to £2,300-£2,400 a year. Such a rise would easily swamp the meagre support that the government offered to households last week. The chancellor failed to even acknowledge this, boldly assuming that wholesale prices would go down soon.

Perhaps the biggest scandal is one in the making. If this crisis doesn’t spur the treasury and wider government to aggressively cut our reliance on gas energy, upgrade millions of homes so they don’t leak heat, and establish a safety net that ensures everyone has enough to make ends meet, then we will have missed a vital opportunity that might not come round again.