Robert Peston, editor of ITV News Politics, explains why fall and winter can be tough for consumers
It is about to have a two-phase assault on the living standards of low to middle income people.
On 1 October, the energy price cap for dual fuel increases from £ 1,150 to £ 1,277 – an 11% increase – at the end of the holiday and a few days before the end of the increase in £ 1,000 a year of universal credit (which Boris Johnson won’t praise in his big Tory conference speech that day).
This is the first blow to the standard of living.
There will then be a further gradual erosion of living standards with increasing food inflation (by around 5%, according to what Tesco Chairman John Allan said on my show last night).
The second big assault comes in April, however, when the energy price cap is expected to be raised by 17% (!!!) to just under £ 1,500, based on the current wholesale price of gas.
And it is precisely at this time Boris Johnson’s 1.25 percentage point increase in national insurance kicks off, taking £ 12 billion a year from households and businesses.
I’m afraid this is not the end of the pressure on living standards.
The annualized increase in our energy bills due to protecting customers of those few energy companies that have collapsed in the last few days is an additional £ 40. And that could rise by an additional £ 50 if three other vulnerable mid-sized businesses were to disappear within the next week.
Ouch. Double ouch.
There is a chance, however, that the £ 90 increase in network tax will not fall on us in a single year – if the Treasury subscribes to a bailout program that would allow it to establish a subscription pot of around £ 2 billion.
This pot would be used to compensate companies taking over stranded customers of bankrupt energy companies, and would be clawed back for the taxpayer over perhaps five years from smaller annual grid tax increases (say £ 18).
But even if these client bailout fees are spread over a longer period of time, there is no escape from what will likely be the biggest increase in the cost of living for about 25 years.
The Prime Minister hopes that we will be bailed out by the rise in wages. But for us – and for him – anti-inflation pay increases are a double-edged sword.
Because they would turn one-off price increases into self-fueled inflation. And that would force the Bank of England to raise interest rates.
The rising cost of money would weigh on property wealth, depress consumer spending, depress investment and raise the price for the government to fund £ 875 billion of its debt held by the Bank of England.
And if all of this happened and Boris Johnson still felt safe in his job, the normal rules of politics really would have been suspended.