The chancellor will use the International Monetary Fund’s spring meetings to promote plans to reduce household costs. But is Britain doing enough?
This week (13-18 April), the International Monetary Fund (IMF) is holding its annual spring meetings in Washington. The event brings together policymakers, bankers, private sector executives, academics and civil society representatives to discuss the global economy.
Unsurprisingly, the conflict in the Middle East is expected to be a major focus. Against this backdrop, UK chancellor Rachel Reeves is expected to call on other countries to work together to manage the economic impact of global instability.
Before heading to Washington, Reeves said: ‘Families and businesses across Britain are bearing the cost of instability they did not cause. These are not costs I wanted, but they are costs we will have to respond to.
‘The Iran conflict must be a line in the sand on how we deal with global crisis and instability. I will go to America with a clear message: global leaders must take co-ordinated economic action and supercharge the path to energy security to protect ourselves in the future.
‘My approach to this crisis will be both responsive to a changing world and responsible in the national interest.’
Reeves is also believed to tout the UK as a ‘safe haven’ for investors and has meetings scheduled with leaders from ARM, Vanguard, IBM and JP Morgan.
Current impact of the war
On the subject of crises, energy markets have been affected by disruption in the Strait of Hormuz – where around 20% of the world’s oil is transported. UK petrol prices have risen by 25p per litre, while diesel has increased by 48p, reaching their highest levels in more than three years.
Borrowing costs have also soared. Before the war started, expectations were that the Bank of England would continue to cut interest rates gradually. However, mortgage lenders have instead pushed rates higher.
Data from the financial information service Moneyfacts, shows the average two-year fixed mortgage has risen from 4.83% at the start of March, to 5.89% now.
For five-year fixed deals, the average has risen from 4.95% to 5.77% over the same period.
How is our government trying to help?
In response to rising costs, last month, Labour announced more than £50m to help vulnerable households, particularly in rural areas, that rely on heating oil to stay warm.
Unlike customers who use gas and electricity for heating and hot water, prices for households using oil are not capped by Ofgem. The support will be given to people at immediate risk of losing hot water, and then the money will be given to councils who will have to decide how to distribute it.
When the news of the support first broke, Simon Francis, co-ordinator of the End Fuel Poverty Coalition, said while talk of stronger regulation was ‘a very positive step…at the moment it sounded more like a signal of intent than a concrete plan’.
‘The path of this conflict remains uncertain’ – what more can be done?
A fully developed plan is needed more than ever. On Monday (13th April), the Resolution Foundation published new research which assessed the difference in projected household living standards between current forecasts and pre-disruption expectations.
They factored in rising energy prices, inflation and the impact of current government support, such as lifting the two-child benefit cap.
Overall, they concluded living standards of the average household were previously on track for 0.9% growth but it’s now set to decrease by 0.6% this financial year. Experts said this translates to the average UK household being £480 worse off.
Following the research, former chancellor Jeremy Hunt has suggested introducing a ‘social tariff’. During a discussion panel, Hunt said the tariff was the ‘most promising way to go…because that would allow you to target benefits at low-income families, irrespective of whether they’re on benefits or not.’
Hunt said a ‘targeted, time-limited’ package of £5bn to £10bn for one year would be doable within Rachel Reeves’s fiscal rules, and to avoid ‘bad longer-term outcomes’ of soaring public debt.
‘It is definitely politically easier for Rachel Reeves to say: this is something I’m going to deal with when I come to the budget in November. But if the moment she announces a social tariff, she announces that bills for the 80% are going to go up in order to fund lower bills for the 20% of poorer households, that is a way to kill a policy stone dead from the outcome.’
James Smith, chief economist at the Resolution Foundation, said: ‘Despite hopes for a sustained peace, the path of this conflict remains uncertain and energy prices remain well above prewar levels, meaning many households face a decline in their purchasing power this year.
‘De-escalation is certainly welcome, but damage to household finances this year is to a large degree already done. The government should act now to prepare a social tariff that reaches households falling through the cracks this winter.’
Image: Shutterstock
In related news:
Leave a Reply