Meeting of the Parliament (Hybrid) 20 April 2022
I begin by fully acknowledging that the current cost of living situation is a serious issue for many families across the country, who see their household bills going in one direction, particularly utility bills, fuel and many items of food. I also acknowledge that their anxiety has been heightened by concerns over the direction of some UK and some Scottish Government policies, all of which have come at the same time as increasing political tension between Russia and Ukraine.
As the International Monetary Fund set out so clearly on Monday when analysing the threats to world economic recovery, this is not an easy time for anyone, especially the most vulnerable families, who it is clear are having to face very tough choices. It may be true that the living wage has increased and tax rates have fallen for those on universal credit, but that does not go nearly far enough to help lower earners, who spend 38 per cent of their income on groceries, heating and electricity, compared with the 18 per cent that higher earners pay. For many of the items that are at the sharp end of increasing costs and, therefore, increasing prices, lower income groups are disproportionately affected, and we should be concerned about that. I will say more about that in a minute.
Seldom are economists united in their approach to economic analysis, but they are when it comes to the reasons for the current high level of global inflation, as are producers and suppliers who are involved in international trade, who confirm that much of the current level of inflation is a direct result of sharply rising shipping and transportation costs—that is one of the main reasons behind the chancellor’s cut in fuel duty—the increases in wholesale gas costs and the disruption to many supply chains.
The Organisation for Economic Co-operation and Development inflation statistics are grim, as are yesterday’s G7 statistics, but there is another important issue, which relates to shortages in labour markets. I have argued previously in the chamber that I would like the UK Government to do much more to ensure that there is greater flexibility in labour markets. In Fife and Perthshire, for example, unnecessary constraints have restricted the supply of seasonal workers for fruit and vegetable farming.
The other factor is that there is demand-led inflation, because there are pent-up levels of demand, which are rising as the Covid pandemic diminishes in scope. Businesses desperately need that demand; so, too, does the country when it comes to addressing weaker economic growth and investment. However, we all know that the policies to deal with demand-led inflation do not always sit easily with those to control cost-push inflation.
We know, too, that the cost of the pandemic is well over £400 billion and that 6 million people are on NHS waiting lists. Whether we like it or not, it was generally agreed when it was first announced that the national insurance increase needed to be gone ahead with.
I have heard the claims that VAT on fuel bills should be scrapped, but economic history tells us that that is not the best way of assisting those who are most in need, as it is not a progressive measure. Indeed, while it might reduce bills by 5 per cent, it would cost the Treasury billions of pounds, thereby necessitating much more stringent measures across the economy, which, of course, we can ill afford.
Therefore, the UK Government has decided to look at other ways to mitigate the effects of the current situation, whether through a UK Government loan to the energy companies of £5 billion to £6 billion, which would reduce household bills by around £200, an increase in the warm home discount or additional loans through which families can get immediate help and more substantial assistance, which is exactly what consumer groups have demanded.
We recently debated replacements for European Union structural funds, but I remain rather surprised by the tone of the reaction in the Parliament to the levelling up fund and the shared prosperity fund, given the direct support that they will provide to local communities—