I understand anxiety over rising prices and inflation. I want to assure you that the Government will continue to listen and to ensure that the policies in place do help those who need it most.
I have made my ministerial colleagues aware of my constituents' concerns and I strongly welcome the range of measures put in place, including the new three-part plan to help households with their energy bills during this challenging period.
Several external factors have driven inflationary pressures. In particular, shortages created by the reanimation of the global economy and global energy price spikes brought on by the inability of supply to keep up with demand. This has been particularly acute when it comes to the price of wholesale gas.
A rise in the National Living Wage will mean an extra £1,000 in the pockets of millions of people. The Government has also cut the Universal Credit taper rate and increased work allowances - which represent an effective tax cut for low income working households in receipt of UC worth £2.2 billion in 2022-23.
Furthermore, broad changes to the tax system are benefitting 31 million workers and mean that the first £12,500 a person earns will be completely tax-free and money has been made available to councils to distribute as hardship funds.
I will be working with my Parliamentary colleagues to ensure the Government continues to help ordinary households up and down the country as our economy continues to recover from the shock of Coronavirus.
I also share the concerns about the impact of Russia's invasion of Ukraine on the global economy and global prices. I know ministerial colleagues are closely monitoring and preparing in regard to this issue.
Inevitably, there will also be an economic cost in Britain as a result of the tough sanctions package levied against Russia. However, I believe that the price of not standing up to Putin would be far greater.
Moreover, the Health and Social Care Levy will be effectively introduced from April 2022 when NICs for working age employees, self-employed, and employers will increase by 1.25 percentage points. The Levy will be legislatively separated from 2023 when NICs rates will return to 2021-22 levels. Dividend tax rates will also be increased by 1.25 percentage points to fund the Plan for Health and Social Care.
I have ensured that ministerial colleagues are aware of my constituents' concerns about the introduction of the Health and Social Care Levy in the context of acute inflationary pressures.
Colleagues at the Treasury assure me that they viewed a broad-based tax base like Income Tax, VAT or NICs as the only viable means to raise the sums needed for such a significant investment in health and social care. The decision to base the Levy on NICs was made with the view that every individual should contribute according to their means, and that the cost of improving the health and social care systems should be shared between individuals and businesses. Successive governments have increased NICs to invest in the NHS, and the NICs system was set up to fund social security. The existing NICs ringfence for the NHS, established in 1948 and expanded in 2003, means that funds for health and social care will be clearly displayed on payslips. It is worth noting that France, Germany and Japan have all increased social security contributions to fund social care provision – the latter two with specific social care levies.
Furthermore, at its meeting ending on 2 February 2022, the MPC voted by a majority of 5-4 to increase Bank Rate by 0.25 percentage points, to 0.5 per cent.
The Office for Budget Responsibility expects inflation to remain elevated across 2022 and 2023. I have spoken with colleagues at the Treasury who are committed to price stability, and the Chancellor re-affirmed the Bank of England's 2 per cent consumer price inflation target at the Autumn Budget 2021.
I am also pleased that the Government continues to work with business to ensure that we have access to safe, nutritious and affordable food from a wide range of sources, particularly from British farmers. As you may know, ministers commissioned an independent review into the food system. Part One of that review was published in July 2020 and it gave recommendations to support this country through the turbulence caused by the COVID-19 pandemic. Part Two of the independent review was published in July 2021 and sets out proposals for measures to combat obesity and improve overall health of children and adults, as well as proposals for specific initiatives to educate children about nutrition at school. My ministerial colleagues will now carefully consider the report's conclusions and respond with a White Paper within six months, setting out priorities for the food system.
However, I understand the burden that many commuters face, which is why I am pleased that successive governments have frozen fuel duty for twelve consecutive years. I am told by my Treasury colleagues that as of April 2021, the average driver has saved over £1,900 compared to the pre-2010 escalator. While I believe that it is important we strive to meet our green targets, the Government should continue to back motorists while doing so.
Global gas prices are high due to various factors, including an increase in demand following the end of lockdowns in various countries and in return economies reopening, a cold winter in the UK, high demand in Asia for liquified natural gas (LNG) transported globally by freight which has meant that far less LNG has reached Europe, and weather events in the US limiting supply to Europe. With reduced variety of supply globally and much higher than anticipated demand, high wholesale gas prices have subsequently driven an increase in wholesale power prices, with a number of short-term markets trading at, or near, record levels.
I am pleased that the Government is clear that protecting consumers, particularly vulnerable consumers or those on low incomes, is its main priority. As such, the Government has reassured consumers that it is committed to the energy price cap and it will remain in place, protecting around 15 million customers up to £100 a year.
Furthermore, I welcome the three-part plan announced by the Chancellor to help households with energy bills.
The first part will see all households in England, Scotland and Wales with electricity meters will receive a £200 rebate on electricity costs from their supplier in October 2022. This will be clearly identifiable as a line on electricity bills and repaid over five years at a flat rate of £40 per year, with no interest, starting in April 2023. Ofgem will increase the price cap to reflect the additional cost to be recovered from consumers in future years, and energy companies will reimburse the Government.
Second, there will be a non-repayable £150 cash rebate for homes in Council Tax bands A-D The government will fund local authorities to give all households in England in Council Tax bands A-D a one-off council tax rebate of £150 in 2022-23. It is expected that the vast majority of people who pay by Direct Debit to receive the money in April. For people who do not pay by Direct Debit, their councils will be ready to process their claims in April. 80 per cent of all households in England will benefit from the rebate and discretionary funding. Although Council Tax is England-only, devolved governments will receive £565 million in Barnett: £290 million for Scotland; £175 million for Wales; £100 million for the Northern Ireland Executive.
Third, £144 million of discretionary funding is being made available for local authorities to support households not eligible for the council tax rebate We will also provide £144 million of discretionary funding for local authorities to support households not eligible – including properties in bands A-D that are exempt from council tax, and households on lower incomes in higher bands.
I also welcome the increase in the Warm Homes Discount to £150 while extending eligibility by a third to reach 3 million vulnerable households.
Finally, over the last two years, the pandemic has caused a statistical anomaly in average earnings. Last year, the law changed for one year to increase State Pensions by 2.5 per cent, when average earnings had fallen and price inflation increased by half a percentage point. If this action had not been taken, State Pensions would have been frozen. This year, the anomaly remains. As millions of people have left furlough and the labour market has changed significantly, reported average wage growth is due to be over 8 per cent. It would not be right to increase pensions by this figure – it is not what the Triple Lock was ever intended to deal with, would cost £4-5 billion, and would have to be funded by increasing taxes on working people.
In September 2021, it was announced that there will be a move to a Double Lock for one year only. This means the state pension will rise next year by the higher of inflation or 2.5 per cent. This approach will ensure pensioners’ spending power is preserved and that they are protected from higher costs of living. Colleagues at the Department for Work and Pensions have assured me that this measure is temporary for one year, and the Triple Lock will apply as usual from next year for the remainder of this Parliament, in line with the manifesto commitment. The State Pension is supported by further measures for older people, which include the provision of free bus passes, free prescriptions, Winter Fuel Payments and Cold Weather Payments.