Yahoo Finance UK needs £12bn more to support families amid cost of living crisis
Britain needs to find billions more in order to keep supporting families amid the cost of living crisis as the costs of household essentials from food to fuel surges, a leading research institute has warned.
Analysis from the Institute for Fiscal Studies (IFS) estimates the government needs an additional £12bn to achieve what it had set out to do with the £24bn package announced in May.
That’s largely because in May energy prices were expected to increase by 95% in 2022 to 2023, and are now expected to rise by 141%, the IFS said.
The research, published on Monday, and funded by the Nuffield Foundation warned that working-age benefit claimants face a decline in their real income under the latest inflation forecasts.
Those claimants are now on course to see a fall of £620 in their real income over the course of the year.
But the IFS says doubling the current £650 grant to those on benefits would protect them on average, as well as help low income pensioners and families in work, at a cost of roughly £5.5bn.
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The IFS noted that the £400 energy discount and £150 council tax rebate in May looked like it would cover around half of the rises in energy costs for a typical family, but that would need to be boosted to maintain support.
"If the government wants to continue to cover half the cost of increased bills support would need to be increased by a further £260 at a cost of around another £7bn," the IFS added.
"As prices of essentials including food, heating and fuel continue to rise, families on low-incomes are facing more uncertainty and pressures," Alex Beer, welfare programme head at the Nuffield said.
"Many of these families were struggling to get by even before the current crisis and are not helped by the rollercoaster real value of universal credit payments, and short-term fixes to help benefit claimants."
Higher prices and collapsing real pay, made worse by rising taxes, have squeezed household budgets.
UK inflation hit another 40-year high of 9.4% in June, nearly five times the Bank of England's 2% target, and real wages adjusted for inflation are now falling at the fastest pace in 21 years.
The Bank has forecast inflation to top 13% by the end of the year as household incomes face additional pressure from rising energy bills that are forecast to top £4,200 in January and rise as much as £5,000, plunging millions into debt.
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Paul Johnson, director at the IFS, believes the government is "still playing catch up" as inflation and the cost of energy continue to spiral upwards.
Johnson said: "Just achieving what they wanted to achieve back in May will cost an additional £12bn, and a package on that scale will still leave many households much worse off.
"Given the costs there are genuine and difficult trade-offs here. For both households managing their budgets and the government managing the economy’s finances some clarity on strategy is urgently needed."
