New PM ‘must double’ cost of living support for struggling families to £30bn

The new prime minister will need to at least double the amount of cost of living support available – from £15bn to £30bn – in order to protect Britain’s most vulnerable households this winter, experts have told The Independent.

The warning from anti-poverty campaigners came as the Conservative leadership frontrunner Liz Truss declared that she will not offer “handouts” to those hit by unprecedented rises in energy prices, favouring instead tax cuts which experts warn will disproportionately benefit the rich.

Her comments earned a rebuke from leadership rival Rishi Sunak, who said it was “simply wrong” to rule out an increase in direct support to households at a time when the energy price cap could leap from £1,971 now to as much as £3,700 in the spring.

Sara Ogilvie, director of policy at Child Poverty Action Group, told The Independent that the prospect of steep price rises on essentials like food and power were “terrifying” for millions of families who had already cut expenditure to the bone after a decade of benefit freezes and low pay.

“Their cupboards are bare,” she said. “Families are terrified – it’s not an exaggeration to say that.

“Four million children are already living in poverty, but we now know that for families on the lower-income bracket – and even moving into middle incomes now – their income is just not going to match their outgoings, an ever-increasing amount is going on essentials and they are worried they are not going to be able to pay their bills any more.”

Mr Sunak’s promise of an uprating of benefits next April in line with September’s expected inflation rate of around 10 per cent will not be enough, said Ms Ogilvie, who said the hike should be brought forward to October.

“April will be too late and 10 per cent will represent a real-terms cut by then,” she said. “If families have to go through this winter without additional support, their finances are going to be absolutely broken by that point. I don’t see how government is going to be able to not do more, frankly.”

Jonathan Ashworth, the shadow work and pensions secretary, denounced the battle between Ms Truss and Mr Sunak to succeed Boris Johnson as PM as a “fantasy island” debate divorced from the real pain facing voters confronted by inflation forecast by the Bank of England on Thursday to top 13 per cent by the end of the year.

But Keir Starmer was also under pressure to deliver a more ambitious response to the crisis, with left-wing Labour MP Sam Tarry – sacked from the frontbench for doing TV interviews from a picket line – warning he will be “blown over” unless working people see he is on their side.

Writing in The Independent, Mr Tarry called for pandemic-style furlough payments to help pay energy bills for 40 per cent of households, and said Labour should be openly discussing further taxation of power companies’ excess profits and nationalisation.

James Taylor, director of strategy at disability charity Scope, said that four in 10 families including someone with a disability were already in poverty, with many depending heavily on energy supplies to run medical equipment.

“A lot of them have nothing left to cut back on,” said Mr Taylor. “We’ll be looking to a new prime minister in September to be announcing something quite quickly. The priority has to be to get money to people quickly, because otherwise it’s going to be catastrophic.”

The principal policy adviser at the Joseph Rowntree Foundation, Katie Schmuecker, said that the anti-poverty thinktank’s surveys showed that as early as May there were already 7 million households “going without essentials, going without food, without enough to heat their homes properly, skipping showers, unable to afford the most basic toiletries”, with the number expected to rise sharply in the coming months.

“The government needs to urgently reassess the support that is given,” Ms Schmuecker told The Independent. “A typical low-income family will be experiencing additional costs in April 2023, compared to 2022, in the realm of £2,500.

“We need to see that package of support being doubled in order to meet the kind of costs that people are facing.”

And the Resolution Foundation’s research director James Smith agreed that with the scale of expected energy cost rises now double what was anticipated in May when Mr Sunak unveiled his package of support – worth £1,200 to the most vulnerable households – the size of direct payments would have to increase by a similar level.

“We don’t know exactly what scale of support is needed, but we know that the money Rishi Sunak announced while he was chancellor is not going to be anywhere near enough to prevent extremely bad outcomes for the economy as a whole but mainly for those on low incomes who are most exposed to the cost-of-living crisis,” he said.

“The previous package in May was scaled to an Ofgem letter that said the price cap would rise by £850 in October to about £2,800. We’re now staring down the barrel of £3,500. We could be talking about another £15bn at least.”

Mr Smith told The Independent it was “extremely odd” that the cost of living crisis had not so far been central to the Tory leadership debate, when it was clear that the “absolute first priority” for the incoming prime minister will be to support households through the winter.

“Whoever becomes the next prime minister, they will need to move quickly in terms of putting fiscal support in place, whether that be through an emergency budget or immediate steps to support households,” he said.

“Using the benefits system is possibly the most targeted, best way to do this. It is not going to be done all that well through the tax system, partly because those who are most vulnerable don’t tend to pay a lot of tax.”

Conservative MP Nigel Mills, who has previously clashed with the leadership over benefits, said it was “imperative and probably inevitable” that the new PM will have to act.

“They will have to,” he said. “The party will expect it, parliament will expect it, the country will expect it.”

Action could take the form of an increase in Mr Sunak’s existing £650 one-off payment to benefit claimants or an increase in the winter fuel payment for pensioners, he suggested.

“With bills this size, you can’t just say it is people on benefits who will need help,” he told The Independent. “It will hit a lot of people in work on middle incomes too. This is going to be the most massive reset for the economy.”

Ms Schmueker said that the long-term solution must be to reshape the social security system and raise benefits which have reached a 40-year low.

But she said it would be “unconscionable” not to act immediately to relieve households now faced with the choice between going without essentials, skipping paying their bills or getting into potentially ruinous debt to loan sharks – all of which will have long-term negative impacts.

“The best option, I think is we would argue is to urgently reassess the immediate support package and look at doubling it,” she said. “And then begin the proper hard work of not just lurching from emergency to emergency but actually rebuilding our eroded social security system.”

Mr Ashworth said that welfare had been notably absent from the Tory leadership debate so far.

Labour was hearing stories of pensioners eating cold food and taking cold showers to save on energy, people in work attending food banks and people turning down the offer of fresh food because they have turned off their fridges. One charity had seen its offer of a free fridge-freezer rejected because the recipient said the freezer element would use up too much power.

“This will be a devastating winter and all we get from the Tory leadership contenders are these fantasy island commitments to tax cuts which will disproportionately benefit the wealthy,” said Mr Ashworth.

“The cost of living has to be the number one priority of the government. Families and pensioners are looking at a winter of starvation or hypothermia, and yet it hasn’t featured in any meaningful way in the Tory campaign.”

Ms Truss’s disavowal of handouts for the first time turned the spotlight of the Tory contest onto benefits.

Mr Sunak said that her promised tax cuts would be worth as little as £170 a year for a typical one-earner household or £186 for one with two incomes of £20,000 each.

He declined to outline what help he would offer as prime minister, but said he would certainly “look to do more”.

“We need to get real about this situation,” said the former chancellor. “It’s simply wrong to rule out further direct support at this time as Liz Truss has done.

“And, what’s more, her tax proposals are not going to help very significantly, people like pensioners or those on low incomes who are exactly the kind of families that are going to need help.”

In an interview with the Sunday Times, Mr Sunak said the British people needed "clear-eyed realism and not starry-eyed boosterism".

But Ms Truss, writing in the Sunday Telegraph, said she did not accept the "inevitability of a recession" as she pledged to "immediately" cut taxes if she wins the race for No 10.

Former prime minister Gordon Brown on Sunday urged Mr Sunak and Ms Truss to put aside their differences to agree an emergency budget with Boris Johnson this week or risk "condemning millions of vulnerable and blameless children and pensioners to a winter of dire poverty".

"The reality is grim and undeniable: a financial timebomb will explode for families in October as a second round of fuel price rises in six months sends shock waves through every household and pushes millions over the edge," the former Labour leader wrote in an op-ed in Sunday's Observer.