Poorest families face prospect of inflation exceeding 10% this year

Poorest families face prospect of inflation exceeding 10% this year

Inflation could reach more than 10 per cent for the poorest families if there is a second sharp rise this autumn, a think tank has warned.

Food price inflation is two percentage points above its historic average and the poorest tenth of households spend twice the share of their family budgets on food and energy bills compared with the richest tenth, the Resolution Foundation said.

It said that the war in Ukraine could supercharge inflation in food and energy this year, affecting Britain’s poorest households particularly badly. The higher inflation will also cause higher debt repayments for the government and a deeper income squeeze for the average household. The conflict is also likely to weaken GDP growth, making a recession more likely.

Analysis by the New Economics Foundation suggested that by next month nearly half of all children would be living in families that sacrifice essentials, such as food, clothes or shoes.

The research came amid intensifying warnings about the severe cost-of-living crisis facing British households. Martin Lewis, the MoneySavingExpert founder, has said that some of the poorest Britons would “simply starve or freeze” after the average annual energy bill rises to almost £2,000 next month and potentially goes as high as £3,000 in October.

Yesterday ministers ruled out using the spring statement, which will be presented by Rishi Sunak next week, to reduce Britons’ tax bills. Asked whether the chancellor would cut taxes Michael Gove, the levelling-up secretary, said: “No. What we have to do at the moment is to provide support in every way possible that is targeted. We have cut taxes by cutting council tax for people who are on the lower bands. We’re doing that deliberately in order to target support at those on lower incomes.”

Gove also ruled out scrapping or delaying the doubling of national insurance next month. “We need that national insurance increase in order to make sure that we can fund the NHS and social care to deal with the Covid backlog,” he said.

Last week David Cameron said that the government should cut taxes to “address cost-of-living pressures”. He said: “I’m often criticised for the difficult decisions we made on the economy, but you’ve got to try and keep the cost of government down. Because . . . if you can keep the cost of government down, people’s taxes down, you help them through the cost-of-living crisis.”

Yesterday Gordon Brown told The Sunday Times: “You can’t put up fuel prices, you can’t allow food prices to go up, you can’t raise taxes and cut benefits. You can’t do all these things at the same time.” He said that whereas Labour had “spent two years preparing for the national insurance rise” in 2002, Sunak “sort of dropped the bomb without any preparatory work”

James Smith, research director at the Resolution Foundation, said: “Until recently the chancellor was approaching his upcoming spring statement with good news on the public finances and little pressure to make any big policy calls. Fast-rising inflation, exacerbated by the conflict in Ukraine, has changed all this. The chances of a living standards recovery this year are receding as rapidly as inflation is rising, and the risk of another recession is looming into view. [He] will therefore need to make some tough, and potentially expensive, choices in how to respond.”