British inflation hits new three-decade high

25 March 2022 5 min. read
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The UK’s cost-of-living crisis further deepened in February, according to official figures. Chancellor Rishi Sunak has been widely criticised for his response to the situation in his spring statement, which critics claim did not do enough to help nation’s poorest people.

According to the Office for National Statistics (ONS), consumer prices rose by 6.2% year-on-year in February. This not only topped the 5.5% rate of inflation in January – which was already the highest rate since 1992 – but was higher than the dire 5.9% inflation a Reuters poll of economists had previously indicated.

The news leaves Britain with the second-highest annual inflation rate of the G7, behind only the United States. Energy prices and the cost of food were already hitting record levels across both economies before Russia’s invasion of Ukraine, which looks set to exacerbate the crisis in the months ahead.

British inflation hits new three-decade high

For February, the ONS highlighted household energy bills booming by almost 25% on their 2021 levels as one of the biggest drivers of February's price jump, alongside a huge increase in the price of petrol. The ONS meanwhile added that food prices were rising across the board, unlike in normal times when some prices typically go up and others fall – in a further blow to lower income households.

As UK inflation hit a new 30-year high, worsening a historic squeeze on consumer finances, the Government’s Finance Minister, Rishi Sunak, has come under pressure to do more to help the UK’s poorest residents. Ahead of his spring statement, options open to Sunak were believed to include a fuel duty cut, pushing up the threshold at which people start to pay into the social security system, and ensuring welfare payments keep up with inflation.

While Sunak’s revised budget sought to deliver on some of these fronts, critics argued measured either did not go far enough, or neglected the needs of those currently sinking deeper into poverty. For example, a 5p-per-litre cut in fuel duty would shave around £3.30 off the cost of filling a family car, motoring groups estimate – leaving the Royal College for Nursing complaining of being short-changed, as it insisted a tank of fuel had increased by as much as £100 a month.

RCN General Secretary & Chief Executive Pat Cullen said, “The cost-of-living crisis means some are having to choose between filling up their cars and feeding their children… Today's fuel measures are not enough to stop nursing staff subsidising the NHS when they fill up their car. When community nursing staff drive great distances to see their patients, giving vital care, this is not enough action.”

Meanwhile, a series of think tanks warned the budget did not do enough to tackle a fall in living standards which would hit the UK’s poorest residents hardest. The Resolution Foundation, a living standards think tank, warned the lack of support for low-income families in the spring statement leaves 1.3 million people – including 500,000 children – on the verge of "absolute poverty". At the same time, the Institute for Fiscal Studies said "the biggest omission" from the spring statement was "anything for those subsisting on means-tested benefits", who face cost-of-living increases of about 10% "but their benefits will rise by just 3.1%".

Some support

With this in mind, most of the newspapers on the morning after Sunak’s announcement – including a number traditionally supportive of the Government – also criticised this lack of support. Not everyone was as pessimistic, however. Changes to innovation tax credits drew praise from professional services leaders – as they emphasised the need to boost national productivity.

Jon Richardson, Tax Leader for Policy, Reputation, Regulation and Risk at PwC UK, commented, “The UK R&D tax credit regime and tax allowances for capital investment are not generous by international standards so there is a need to do something, otherwise the UK will not be competitive from April 2023 when the super deduction ends and the corporation tax rate increases to 25%... The Chancellor’s Tax Plan focuses on innovation, capital and skills, which are the right things to focus on when it comes to fostering growth and productivity, and will be largely welcomed by business. The gains in productivity and growth planned by the chancellor will not happen overnight but the Chancellor has focused on the right priorities.”

And small businesses also sounded some relief at Sunak’s plans. Federation of Small Businesses (FSB) Development Manager Natalie Gasson-McKinley, praised tax changes for SMEs, along with the fuel duty reductions.

She added, “We are very pleased to see the Chancellor adopting our top ask for this Spring Statement: uprating the Employment Allowance to help small employers with national insurance costs. We originally put forward the Employment Allowance as a targeted measure to help small firms, and it has now been expanded three times since its creation. Together with a cut to fuel duty, these measures will provide crucial breathing space for our embattled small employers.”

But even here, Sunak drew some critique. Chris Barlow, partner at MHA, believes the Chancellor failed to address the needs of manufacturing businesses in the wake of increasing inflation, energy prices and taxes.

Barlow argued, “While Rishi Sunak would like to be known as a Chancellor who reduces taxes, the Spring Statement was a missed opportunity to help manufacturing businesses facing an onslaught of increases ranging from inflation to tax rises. Some of the reliefs and tax cuts announced today sounded impressive but pale into insignificance when you consider the barrage of tax increases on the way.