Cost of Living Increases: Who Should Reeves Support…and How ?

 

Once again, Rachel Reeves has a problem on her hands…a big one.

We’re all starting to feel the pinch as a result of the latest economic shock – Trump’s Iran War. Even before it started, a large slice of our population, on low wages but not entitled to benefits were really not able to make ends meet without taking out additional loans.

Electricity and Gas price rises imposed by the supplier ‘cartel’ and sanctioned by OFGEM have been particularly injurious, and many have been left with large debts in the form of unpaid utility bills, just by keeping themselves and their kids warm this winter. We have also allowed our water companies to fleece consumers royally despite their appalling sewage pollution record, with a particularly onerous 20% increase imposed in some areas in the last year despite this. The only ‘chink of light’ is that suppliers themselves are finally beginning to realise that all they achieve by maximising their profit margins to the extent that they have is an increasing debt mountain, which they (or indeed their adminstrators!) may never be able to recover.

So far the Labour government has done nothing to support the ‘challenged middle’ as some call them, while continuing to heap benefits on those who qualify for State benefits, to the exclusion of the rest of the population.  Reeves has been allowed to pile on the tax increases budget on budget, emasculating our private industry sector in order to bolster the public sector.

I’ve discussed the pernicious effect of this policy at some length in a previous blog, and won’t rehash the arguments here. Suffice it to say that, not only does this stoke resentment against benefit claimants, but it discourages any incentive to better oneself, or indeed to bother taking on the responsibility of work and come off benefits. We have now got to the ridiculous position where our welfare system allows someone sitting on benefits to be significantly better off than their counterpart in a low paid job, despite recent rises in the minimum wage, which has hit industry hard.

When Trump attacked Iran and we saw the consequences of the Iranian blockage of Hormuz to shipping, many of us actually hoped that Labour would finally see sense and provide some help to those not on benefits but struggling with the cost of living.

We should perhaps have known better by now…..

Starmer made a great show of promising to offer help ‘when the time was right’ but stressed that any support would have to be targeted ‘so we could afford it’. No details were given, but strong hints were dropped that any ‘handouts’ would be heavily means tested.

And therein lies Reeves’ problem…who does she select for preferential treatment …and how ?

We have, of course, been here quite recently with Labour’s miserliness to their elderly population – over Winter Fuel Payments (WFP). His own back benchers forced Starmer to relent on his much-trumpeted 2024 policy of confining WFP to Benefit claimants. Amongst other things, this re-think (or should I call it u-turn?) resulted in a huge extra administrative burden for HMRC, who will be faced with the task from this April onwards of clawing back £200 from each of the 5 million pensioners who will be paid the benefit by DWP each November, but whose income may have exceeded the £36k threshold and therefore don’t qualify.  Presumably this will be done via Self Assessment return filings….but what about pensioners who don’t currently participate in SA ? Will they be required to complete SA online ?....we shall see what chaos this actually causes shortly, no doubt – April 5^th is almost with us.

Will Reeves be stupid enough to try to confine help to Universal and Pension credit claimants only again this time, to avoid a similar mess ? I doubt it, given the back-bench backlash last time she tried it on. It’s more likely that she’ll try to adopt the same strategy as used for the pensioner WFP, using the £36k income ‘trap’ to help minimise the loss of revenue.

However, if she does this, HMRC will be forced every year to screen the incomes of the whole adult population to find out who has earned more than the limit that year (whatever it is set at). To do this, it will have to require self-assessment (SA) documentation from everyone – it won’t be sufficient just to screen PAYE returns since this won’t ‘catch’ other qualifying income earned by those who don’t currently have to participate in SA – i.e. most of the working population who are not actually self-employed. If they thought that the WFP qualification assessment burden was large, this one would be horrendous, and would paralyse HMRC assessors for months just setting up a suitable scheme.

Will Reeves relent and do the decent thing, by providing everyone with some help – at least with their fuel bills ? Doubtful, I’m afraid, given her obsession with ‘Tory Black Holes’ and her ‘iron clad’ fiscal rules. She’ll defend these ‘to the death’…or at least until the June putsch when she finds herself and her boss are out of a job.

First Published 2.4.26