Rishi Sunak’s support package leaves middle-class families £3,100 short

Analysts at the Resolution Foundation estimate that a 9.5 percent rise in the welfare bill, based on the expected inflation rate in September, will push the chancellor’s spending by 15 billion next year as price pressures tear the economy.

Capital Economics’ Paul Dales says the extra borrowing and issuance “will add to already significant inflationary pressures,” adding that “despite the extra aid, there’s still a pretty good chance of a recession.” That is the extent of the energy price jump.

Kallum Pickering, an economist at Berenberg Bank, called the Chancellor’s policies “misguided” and warned he might not stop handing out cash to fight inflation, even if it did push prices up further.

“Now that the government has committed to keeping energy costs affordable through direct fiscal support, it will be difficult to reverse that – especially if this translates into even higher inflation later on,” he says.

If the Bank of England has to hike rates more quickly as a result, Pickering adds, it risks “starting a recession. Unemployment would be far worse for living standards than high energy prices, that’s for sure.”

JP Morgan’s Allan Monks believes the Monetary Policy Committee (MPC) will need to make an additional rate hike this year, taking the policy rate from 1% now to 2% by the end of this year and 2.75% by August 2023 .

Windfall Tax “insufficient”

Meanwhile, the move is bad for public finances.

Investec’s Sandra Horsfield says the windfall tax is “by no means sufficient” to cover the £37bn in spending Sunak has pledged to tackle Britain’s cost-of-living crisis.

“The remainder appears to have come from higher borrowing and the use of part of the ‘war chest’ built up in part from previous borrowing that has been successively revised down,” she says.

“Improving public finances has been deprioritized given the level of pressure on household budgets.”

But with the added sting of yet another tax hike, it also risks inflicting pain on the economy.

Jagjit Chadha, Director of the National Institute for Economic and Social Research, says: “Once again we are faced with the spectacle of politics getting in the way of a good economy.

“When it comes to taxes, we should remember that if we act hastily, we can repent in peace.

“Taxes can and should come later, support must come now.”

As for the individual, the Chancellor’s living expenses package will benefit society unevenly. It will offset less than a fifth of the cost increases faced by middle-class families this year.

Sunak announced a £200 rebate for household energy bills this autumn, which is now being doubled to £400. This is in addition to the £150 council tax credit granted to 80 per cent of houses in England in council tax bands A to D.

However, despite rising bills across the board, there is a risk that Sunak’s support will fall short of protecting middle-class consumers who do not receive measures such as a £650 welfare payment for means-tested welfare households.

Middle-income families are facing bill increases of nearly £4,000 this year, according to Telegraph analysis, with the state payout accounting for just 14 per cent of that total.

Energy bills rose by an average of £693 in April and will rise further this October when the energy price cap rises to £2,800 – up 42 per cent from current levels. That means the average household will have to pay £1,523 more a year compared to last winter, regulator Ofgem has warned. Rishi Sunak’s support package leaves middle-class families £3,100 short

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