ITV News Business and Economics Joel Hills reports on how millions of households are under increasing financial pressure as prices rise amid rising interest rates
Rampant inflation will push thousands of households into "debt and destitution" unless the government takes immediate action to support falling real incomes, according to analysis by the National Institute of Economic and Social Research (NIESR).
The NIESR calculates that rising prices and higher taxes will leave 1.5 million households across the UK facing food and energy bills which are greater than their disposable income.
The greatest concentration of those hardest hit will be in London, Scotland and Northern Ireland.
”These people, unfortunately, do not have the large amount of savings that better off households have,” says Professor Jagjit Chadha, NIESR's director.
“They are therefore constrained by whatever income is coming in day-to-day. Essentially, they are living hand-to-mouth and in that world they need support now.”
In Tuesday’s Queen’s Speech, Boris Johnson said the government is taking steps to address the cost of living crisis, but insisted that the government could not fully shield Britons from the impact of soaring inflation.
The prime minister highlighted an existing package of support for households worth £22 billion. The NIESR describes the scale of this response as “inadequate”.
“What we have from government is a ‘wait and see plan’ and ‘let’s do something in six months' time,’” says Professor Chadha.
"I’m afraid that the bills are coming in now, I’m afraid that households are suffering now.”
Professor Chadha: 'There needs to be direct support for households'
High inflation leaves everyone feeling poorer but it hits those on the lowest incomes the hardest, as they tend to spend a greater proportion of their income on food and energy.
Food and energy prices are rising, benefits have increased by much less than inflation and although the government raised the threshold for paying employee national insurance contributions by £3,000, the rate of contributions also increased in April.
The NIESR estimates that the average household faces a fall in its real income (when adjusted for inflation) of 2.4% this year, while those on the lowest incomes are experiencing a fall of closer to 12%.
The NIESR wants Chancellor Rishi Sunak to immediately raise Universal Credit by £25 per week between May and October for five million households.
In addition, it is calling for one-off cash payments of £250 for 11.3 million lower-income households during 2022/23.
These measures would cost the Treasury just over £4.2 billion. Without such support, the NIESR estimates around 250,000 households will “slide into debt and destitution” this year.
The NIESR points out that the scale of the economic shocks hitting the UK were entirely foreseeable, that the chancellor had the opportunity to help the most vulnerable in his Spring Statement in March, but that he chose to prioritise reducing the deficit instead.
At the time of the Spring Statement, the Office for Budget Responsibility (OBR) estimated that Rishi Sunak had £20 billion to spend while staying within his fiscal rules, but only £10 billion of that was allocated.
For more analysis of news' biggest stories, listen to the What You Need To Know podcast
"[Extra support for households] is affordable," insists Prof Chadha.
"The government has at least £10 billion to spend. We are saying that around £5 billion needs to be dispersed immediately, it cannot wait until the autumn, it needs to be spent now. The money is there, let’s do it."
Responding to the NIESR report, a spokesperson for the Treasury said: “We’ve had a strong economic recovery from the pandemic which has put us in a good position to deal with the se global challenges we are facing.
“But these are anxious times and while we can’t shield people entirely, we are taking action through support worth over £22 billion this financial year.
"This includes a tax cut of over £330 a year for the typical employee, lowering the Universal Credit taper rate to help people keep more of the money they earn, and providing millions of households with up to £350 each to help with rising energy bills.
“Public debt is at the highest levels since the 1960s and rising inflation is pushing up our debt interest costs, which means we must manage public finances sustainably to avoid saddling future generations with further debt.”