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

 

Once again, Rachel Reeves has a thorny problem on her hands…it's a significant one, and not one she can ignore....

We’re all starting to feel the pinch as a result of the latest economic shock – Trump’s ill-advised Iran War. 

We knew the economic pain it would cause; 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 high-interest loans. For some of them, yet another economic shock will bring them to the brink of bankruptcy.

The excessive electricity and gas price rises imposed by the supplier ‘cartel’, and sanctioned by OFGEM have been particularly injurious. Many consumers have been left with large personal debts in the form of unpaid utility bills, just because they opted to keep themselves and their kids warm and fed this winter. With a large hike expected in the cap in July, next winter looks to be even worse for them. 

We have also allowed our water companies to 'fleece' consumers royally in recent years, despite their appalling sewage pollution record, with a particularly onerous 20% increases in water bills imposed in some areas in the last year, with another 10% to come this 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 customer debt mountain, which they (or indeed their adminstrators when they go bust!) may never be able to recover. Time for some resolute government action...

So far the Labour government has done nothing to support the ‘challenged middle’ as some call them. This is a large group, including some at the bottom end of the wages scale who are just above the benefit but really struggle to make ends meet. They get nothing, while the government continues to heap yet more largesse on those who qualify for state benefits, to the exclusion of the rest of the population. Even Starmer's precious 'working people' who he seems to regard as a protected species, are beginning to wonder whose side he's really on. Reeves has been allowed to continue piling on the tax increases budget on budget, emasculating our private industry sector in order to bolster the public sector and their excessive wage demands.

I’ve discussed the pernicious effect of this policy at some length in a previous blog, and won’t therefore re-hash the arguments here. Suffice it to say that, not only does this stoke resentment against benefit claimants, but it discourages any incentive for hard-working 'aspirants' (i.e. most us!) to better themselves and their families. Even more damaging from a mental health point of view is that it discourages benefit claimants from bothering to take on the responsibility of work and thereby forfeit their more lucrative benefit income. 

If it's allowed to continue, this will effectively exclude them permanently from the jobs market and condemn them to a life on handouts. It's important for these claimants to remember that these may still be relatively generous now, but they could well dry up if things get even tougher economically. They will certainly do so when we elect a new government in 2029, since both the Conservatives and Reform have made benefit reform a key part of their manifestos.

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. And who's to blame them for 'looking after number one' ?

When Trump attacked Iran last month and we began to see the economic 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.

After 2 years of mistaken policies, we should perhaps have known better by now…..

Starmer, in one of his infrequent appearances in the House nowadays, 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 as a nation’. No details were given, but strong hints were dropped that any such handouts would be heavily means-tested.

And therein lies Reeves’ problem…who does she select for preferential treatment …and how ? It's all very well her taking the position at IMF meetings of an angry and aggrieved victim of US warmongering, thereby alienating Trump even further, but she must find a way of making life easier for her electorate...or else pay the price.

We have, of course, been here quite recently with Labour’s specific miserliness towards their 'burdensome' elderly population as they see us – over Winter Fuel Payments (WFP). His own back benchers (bless 'em) forced Starmer to relent on his much-trumpeted 2024 policy of confining WFP to pension credit claimants only. Amongst other things, this re-think (or should I call it an  enforced u-turn?) has resulted in a huge extra administrative burden for HMRC, who from this April onwards will be faced with the task of clawing back £200 from each of the ca 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 by recourse to Self Assessment return filings….the problem there is that there are ca 11 million pensioners, only a relatively small proportion of whom are required to submit self assessment filings. So what about all those pensioners who don’t currently participate in SA ? Will they be required to complete SA online, when many don't have a computer or access to broadband to do it with ?...and more to the point, how will HMRC check whether all these new potential 'victims' have actually registered for SA?

We shall see what chaos this actually causes shortly, no doubt – April 6^th is now upon us.

Will Reeves be ill-advised enough to try to confine help to Universal- and Pension-credit claimants only again this time, to avoid a similar administrative mess ? I doubt it, given the back-bench backlash last time she tried it on. The divisions in society at large this would undoubtedly cause when almost all of us are now suffering some economic pain would be too injurious to Labour's election prospects, which are already poor. It’s more likely that she’ll try to adopt the same strategy as she used for the pensioner WFP means-test, using the £35k income threshold ‘trap’ to withold the payments from all but the lowest earners to help minimise the loss of revenue to the treasury.

However, if she does this, HMRC will be forced every year the policy is maintained to screen not just pensioner incomes, but those 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 existing PAYE returns or DWP benefit payments since this won’t capture other qualifying income which may be being earned by those who don’t currently 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 would be large, this one would be horrendous, and would paralyse HMRC assessors for years. Just setting up a suitable scheme would take months - to say nothing of the costs in the extra staff salaries and expensive bought-in locum and consultancy fees. And so much for the key task HMRC were assigned by Reeves of filling the 'Tax Gap' (currently ca 46Bn - they'll all be too busy trying to extract a few hundred extra quid from any pensioners they can catch out !

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 sticking to her ‘iron clad’ fiscal rules - no matter what. She’ll defend these ‘to the death’…or at least until the June putsch when she will likely find herself and her boss out of a job. 

Roll on May 8th....

First Published 2.4.26; Revised 15.4.26