My Lords, the real and present danger of rising inflation is clearly and obviously undermining public well-being. It is common cause to want to increase growth, but the questions of how to, who benefits and who suffers on the journey plan are at the heart of the markets’ and the public’s failing confidence in the Government. The Government have frightened the ordinary people whose interests they were elected to protect.
The Government are now so deeply divided that chaos will of itself undermine market confidence in the UK. Borrowers faced paying the price for the market’s lack of confidence in the mini-Budget, and millions will now feel the cost of regaining it. The Prime Minister’s Budget undercut key institutions, came with no OBR forecast, lacked detail about costing, worked at cross-purposes with the Bank of England and led to dramatic shifts in the financial markets. Her approach invited no restraint and certainly did not consider public well-being.
Of course there are global pressures, but there is a unique UK government contribution. The chief executive of the Resolution Foundation called it
“the biggest unforced economic policy error of my lifetime … Lower taxes combined with a loss of market confidence mean rising interest rates, leading to higher mortgages and lower living standards.”
Rishi Sunak observed:
“We cannot make it worse. Inflation is the enemy that makes everybody poorer.”
Unfortunately, it was made worse—much worse.
On 23 September the fiscal Statement was delivered against the background of a rising cost of living, weak growth and rising interest rates. Kwasi Kwarteng said that it was
“a new approach for a new era … For too long in this country we have indulged in a fight over redistribution”,—[Official Report, Commons, 23/9/22; cols. 934-38.]
and that the new Government would “focus on growth”. That was a defining Statement. It conveyed the view that arguments over redistribution are an indulgence, that planning for the public well-being is separate from achieving economic growth and that the public benefits of growth would trickle down from the spending and investments of rich people and big corporations who are taxed less.
On trickle-down, oh so many authoritative sources reinforce the IMF view:
“We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down.”
Gross domestic product is an important measure of national performance. It indicates changes in the size and overall strength of the economy. There is growing recognition, however, of the limitations to the use of GDP because it fails to capture many things that society may value. There is a growing view that traditional economic measures should be complemented by well-being measures to inform policy and spending priorities. To lift from a Bank of England explanation:
My Lords, my noble friend Lady Drake has done a characteristically brilliant job of describing the impact of the rising cost of living across the whole landscape. I will focus specifically on the impact of inflation on low-income households, especially those who depend on benefits for their survival. I warn noble Lords up front that this will get techy and dull in parts but, frankly, given what is happening down the other end, a bit of dullness would not do us any harm.
I get really cross when I hear jibes, to this day, about the idle poor and Benefits Street. If we are to be a country where your well-being is not determined solely by having chosen your parents with care, we need a thriving welfare state. We have the basics of it there but we do not need one that is simply a safety net. We also want something that can fulfil its original ambition to be a companion service to the NHS—something that pools risk across the population and across lifetimes, so that we pay in, work and contribute when we can and we take out when we cannot or when our needs are greater. We need a system that helps us: when we cannot work or can work only part-time; when we retire; if we get sick or injured; or if we are caring or bereaved.
We have a system but for it to work, benefits need to keep their value. Prior to 2011, rates were linked to the retail prices index—RPI—or a variation called Rossi. From 2011, they were linked to the consumer prices index—CPI. Incidentally, that RPI to CPI shift saved the Government a lot of money at the expense of the poor. The current measure used for uprating is the CPI 12-month rate for the September before the April when the increases take effect. That gap between September and April is allegedly there to allow the computers to be updated but, at a time of rising, high or unstable inflation, it can cause problems.
For example, the CPI rate in September 2021 was 3.1%, so benefits rose in April by that much; unfortunately, in April inflation was 9%. The CPI rate in the month just gone was 10.1%. Logically, that suggests benefits would rise by 10.1% in April—but if they do, the IFS says that would leave their real value around 6% below pre-pandemic levels, equivalent to about £500 per year for the average out-of-work claimant. That is because the rise last April was so much lower than inflation.
I congratulate the noble Baroness, Lady Drake, on her excellent opening speech and refer to my relevant interests in the register.
As we speak, we are witnessing political turmoil of a kind I have not seen in my lifetime. Frankly, we are a laughing stock on the world stage. All of this makes me very angry because it is ordinary people who will pay the price, and that is what we are debating. On 23 September we were already in a cost of living crisis, with the highest inflation in 40 years and the nightmare of out-of-control energy prices. Events since then have caused massive further anxiety, fear and distress for millions of our fellow citizens. The cost of living crisis we are experiencing and the impact on public well-being is simply dire. All the research on well-being shows that not being able to meet basic needs has a negative impact on well-being individually, as families, communities and as a nation.
How did we reach this parlous state? It just does not wash to blame it all on Ukraine and other international factors. The market’s response to the so-called fiscal event of 23 September—the completely unfunded and by far the largest giveaway Budget in 50 years—was instant, brutal and devastating, both for the UK economy and us all as individuals. Sterling plunged; gilt yields rocketed; mortgage rates rose by well over two percentage points; and major players in the pensions market came close to insolvency. The outgoing Prime Minister’s much-lauded but quickly junked growth plan led to the UK losing overnight our much-cherished global reputation for fiscal probity and sound financial management.
Instead of it being a case of going too far too fast, the truth is that the growth plan did not survive its first contact with economic reality. The immediate result was to crash the economy. It is ordinary citizens—particularly the most vulnerable and the lowest paid—who are going to pay the highest price. Fast forward a few weeks: the IFS and others estimate that there is a remaining black hole of around £40 billion still to be bridged in the Chancellor’s Budget on 31 October. The Chancellor has said that he will be identifying a mixture of further extraordinarily painful cuts in public expenditure, together with increases in taxation. No matter what the Chancellor does, however, the UK will be paying a significant political risk premium to lenders not just for months but for years to come. One very visible effect of this is that millions will be paying higher mortgages and rents of several hundred pounds a month for years to come. It is no wonder that people are anxious, and public well-being has nosedived.
My Lords, we all know the problem facing our country: as a nation, we have become poorer. Our import prices have risen more than our export prices and, on that account, we are 5% poorer than we were a year or so ago. That is a lot of money—over £100 billion a year—and it is something we cannot escape.
This is the issue that the Chancellor is facing: who should bear the cost of the loss in our national income? It could be working people, the owners of capital or the public services—those are the only three parties that could be cut to bear this cost. Or it could be some combination. This is an agonising dilemma; I think the Chancellor called it “eye-watering”. So how should the Chancellor decide between these three parties and the sub-groups within them? What criterion should he use to make the decisions? The answer of course lies in the brilliant way in which my noble friend formulated the issue for this debate: it should depend on the way in which each of the alternative options would affect the well-being of the population. This is the new approach—it is totally feasible, and we should adopt it.
For example, we know a lot about what affects well-being. The first thing we know is that a loss of real income matters more to the poor than to the rich. To be specific, the loss of £1 hurts a person on low income 10 times more than someone who is 10 times richer. So, as others have said, the top priority for the Chancellor must be, as other speakers have said, to fully protect the real incomes of those on lower incomes.
When it comes to richer citizens, there are real issues about what is most important to them at the margin: is it their own spending power, in real terms, or is it also the services on which they depend? Here, too, well-being science provides important insights. In explaining the spread of well-being, real income is not the most important thing: health always comes top, especially mental health, as the noble Baroness said. Then comes stable family life, happy work and workplaces and safe communities—and only then comes income. When people are asked—in a survey commissioned by Sainsbury’s, for example—about their main worries in daily life, it may surprise Members of this House and the political class that the order is the same: income and debt come about sixth in the list. So public services are crucial to all of the other things that affect well-being, as well as income.
3:37 pm
Lord Howarth of Newport (Lab) [V]
My Lords, the cost of living crisis, so catastrophically intensified by Liz Truss and Kwasi Kwarteng, has been developing for a long time. It was an illusion that inflation had been abolished. Eventually, printing money on an industrial scale by quantitative easing unleashed inflation and central bankers were wrong to suppose it would be transitory. Inflation generates inequality. More than a decade of QE led to a gross inflation of asset prices and vast inequalities of wealth. We know from the research of Kate Pickett and Richard Wilkinson that more unequal societies suffer more severe pathologies in physical and mental ill health, the well-being of children, teenage pregnancies, drug abuse, violence, prison populations, destruction of trust and of community life.
Combining monetary laxity with fiscal austerity, the policy choice of David Cameron and George Osborne, led to a harsh and damaging erosion of public services and physical environments. We know from the research of Michael Marmot that poor conditions in which people are born, grow, live, work and age are social determinants of poor health and well-being. Poverty brings anxiety and depression, and people in poverty have suffered more from Covid. The Health Secretary has suppressed the health disparities White Paper, but the Government should acknowledge this. A deregulated private sector and an obstinately misplaced faith in trickle-down economics—the creed of Prime Minister Truss—have produced a long-term stagnation of wages and, in combination with a pitiless scaling down of the social security system, the emergence of a gig economy and a precariat who live in chronic insecurity and economic stress. In-work poverty has become normalised.
The Conservative emasculation of the welfare state—most recently Rishi Sunak’s cut to universal credit, but worse is now threatened—has meant that more and more people have had to rely on food banks. The food banks now report that they are in crisis, dealing with unprecedented demand. People on lower incomes spend a larger proportion of their resources on the items whose cost have shot up the most: food and energy. Food inflation—inflation for the poor—is now around 14%. People are driven to cross off their shopping lists healthier items that have become even more unaffordable. The Food Foundation charity reports that, in September, nearly 20% of low-income families experienced food insecurity. A very worrying number of people say that they have not eaten for a whole day. Professor Marmot warns that the alarming increase in hunger points towards more stress, mental illness, obesity, diabetes and heart disease for those who are worst off.
QE also wrecked the housing market by hugely boosting the prices of homes and rendering it impossible for people on modest incomes with modest savings to buy, or even to rent, a home in large parts of the country. Not to have a secure roof over one’s head, and to despair of entering that state, is profoundly inimical to well-being.
My Lords, I am delighted to contribute to this very timely debate. Noble Lords will be surprised to hear that it marks a big step forward in the policy approach taken by the Government. I had been very dubious about the idea of maximising growth, wondering, “Growth of what?” But, thanks to the Leader of the Commons, we now know that the focus of the current Prime Minister
“is on the wellbeing of every one of our citizens.”—[Official Report, Commons, 17/10/22; col. 378.]
Wow. That is an incredible surprise. I very much hope that the next Prime Minister will continue that emphasis.
Let us be clear: maximising GDP growth is really stupid. It is not something that any grown-up would want to do. As the noble Baroness, Lady Drake, said, GDP basically measures a pound, irrespective of who gets it; one pound to the millionaire counts the same for GDP as one pound to someone on universal credit; and one pound to someone in the richest part of the country counts the same as one pound to someone in the poorest, most deprived part. So how do you reconcile levelling up with maximising GDP growth? They are wildly inconsistent. On top of this, Simon Kuznets, the economist who put together GDP in the 1930s, begged us not to use it as a measure of success; it is a measure of activity.
Having been a Permanent Secretary to the Treasury, I can tell you that maximising GDP growth is completely straightforward. I could do it like that. I could concrete over the south-east of England and build lots of houses or, if you want something a bit more radical, I could explain that we should just get rid of charities and volunteers: we should stop anyone volunteering and tell them they have to get out on the streets and take up prostitution or selling illegal drugs, because both of those count in GDP, but volunteers do not. You would have to be stupid to think about maximising GDP.
There is a far superior goal, which Richard—the noble Lord, Lord Layard—has worked on tirelessly for many years: maximising well-being and, in particular, reducing inequalities in well-being. The simplest way to raise well-being for all is to work on those at the lowest levels of well-being, as the noble Lord laid out. That would mean, first, spending a lot more money on mental health services. We know how to do this.
My Lords, I welcome this moving and timely debate and the opportunity to highlight the consequences of the rising cost of living and its impact on well-being. I particularly want to focus on the well-being of children.
Psalm 41 begins with the words, “Blessed are those who consider the poor”—a reminder, if we need one, that the well-being of the whole nation is enhanced or diminished by the way we respond to those most in need. This insight is shared by all the great faith traditions.
So let us consider the poor, especially children caught in poverty and the impact of that on their well-being. The Children’s Society published its Good Childhood Report a few weeks ago. The stats have been quoted already. Some 85% of parents and carers are concerned about how the cost of living crisis will affect their families; that is nearly everybody. A third of families reported that they are already struggling with the costs of school trips and uniforms over the next year. A recent Action for Children survey report found that nearly half of children worry about their family finances—but, of course, many children’s needs are much more basic.
The diocese of Oxford has more than 280 primary and secondary schools across three counties in one of the better-off parts of the country. But heads and governors report that more and more effort is having to be invested in feeding children and other forms of social care. Our director of education tells me that many of our schools are even now having to meet basic needs through providing food parcels, giving away school uniforms, brokering support from local charities, washing school uniforms—even buying beds.
This means that time and energy are being drawn away from the primary focus of schools: to educate. Every teacher knows that it is impossible for children who are hungry to learn well. Schools report that their budgets are being squeezed through rising energy costs and rising salary costs for which they have not received extra funding. One head writes:
My Lords, I thank my noble friend Lady Drake for her characteristic enterprise in securing this debate at this particular time. Not many people will envy the Chancellor of the Exchequer at the moment, as he wrestles with shifting the trajectory of the economy from the feckless spending of his predecessor to what looks like a big bout of painful austerity, with cuts, cuts and more cuts coming our way. As a result of the calamity of the last few weeks, we are poorer, shakier and more feeble. That is bad news for all of us who care deeply for the future of the country. We know from experience who suffers most in periods of austerity, and references have been made to this by previous speakers. We know it is the poor, the old, the young and people who were on the breadline before the crisis and who now face the avalanche of soaring food, housing and energy prices—a devastating prospect. This time it must be the comfortable who step forward and carry the heaviest burdens, not the vulnerable and hard pressed.
For sure, some of the reasons for this are global, as the Government claim. But not all are; some we know are home made. Step forward the team of ignominy—the European Research Group, the Institute of Economic Affairs and the Adam Smith Institute—all of whom have earned a place in the dock for the Truss-Kwarteng calamity. The great irony is that the team of ignominy believed that they were taking back control, as they promised in the EU referendum of 2016. Under their blueprint, we would shake off the EU’s shackles, jettison Brussels’ constraints and become sole masters of our destiny. Yet, “Take back control” was always a delusion and the Government have now been blasted by a reminder that there is no such thing as pure sovereignty. Of course, it was not the EU that dictated a whole new policy direction for our economy; it was the money markets. They have taken back control—not for the first time in British economic history.
The UK has just learned the hard way that it cannot announce £43 billion of unfunded tax cuts as a time of high debt and rising inflation. The markets would not have it and acted brutally to remind the UK of some painful lessons. Many of us across the political spectrum hoped that we had seen the end of post-imperial delusions about the UK as a world power, able to be fully sovereign and free of external constraints. We hoped those days were over. We were wrong; the delusion is alive. It was the underlying principle of the leave campaign in 2016. It was central to the Truss leadership campaign, and it shaped her first few weeks in office. It is a vain dream. Just as Suez made us face our military and diplomatic limitations, so should the Conservative Party stop using nostalgia as its guiding star for the future.
4:07 pm
20 of 42 shown
“GDP doesn’t tell us anything about how evenly income is split across the population. Growth could mean everyone becoming better off or just the richest segment getting even richer.”
In 2018 the Treasury Green Book guidance on public sector appraisal and evaluation was revised to include references to well-being at all stages of policy development. I doubt that guidance got an airing in the preparation of the mini-Budget. The ONS has a well-being measurement framework consisting of 10 domains. I cannot cover them all but they include the economy, personal finances, where we live, health, personal well-being and the environment. As the FT reported, the ONS September figures confirm the stress that inflation, falling real wages and rising mortgage rates are placing on households, and the proportion in financial difficulty is increasing. One-fifth of Britons are being forced to borrow more to meet payments and half are unable to save at all. One-third have struggled to meet mortgage payments and we have not seen the full extent of the hikes in mortgage rates. Three-quarters—77%—of adults are worried about the rising cost of living. The experience of Step Change, the debt charity, aligns with these findings.
High inflation does not impact everyone equally. New Economics Foundation modelling shows that, on average, price increases have pushed up the cost by £2,300 a year of an essential basket of goods and services—the minimum income standard measured by Centre for Social Policy research. This rise for the poorest half of families is nine times larger than for the richest 5% as a proportion of income, and six times larger for middle-income families. Middle-income families are increasingly impacted. An additional 2.2 million people across 900,000 households will see their incomes fall below that standard in 2022, despite having average earnings from work of £33,000.
These findings and those of the IFS, the Resolution Foundation, the Legatum Institute, the Joseph Rowntree Foundation and many others confirm the importance of uprating universal credit and legacy benefits by inflation for the many stressed individuals and households. You do not get a clean slate by asserting that it is a new era; you have to carry the consequences of the impact on public well-being of the sustained cuts in social security benefits over the past 10 years and the compounding effect of future cuts. Asserting a clean slate is not enough.
Few things are more important for public well-being than a roof over your head, but mortgage rates are up, rents are rising, the stock of housing is stagnating and homelessness is rising. Adults in their 30s and 40s are now three times more likely to rent than 20 years ago. Household debt is rising. Household financial resilience is already in decline in the UK. Some households can weather the storm, but many others lack the resilience to do so. Employment benefits, social security benefits, private insurance, savings, affordable credit and fewer pre-existing debts strengthen financial resilience, but all those factors have been weakening. The majority of employers now pay only statutory sick pay of £90.33 a week, 11.5 million adults have less than about £100 in savings and 65% have no form of life or protection insurance.
Recent ONS findings on household financial resilience confirm that the proportion of households in financial difficulty is rising. Its opinions and lifestyle survey uses the affordability of an unexpected expense of £850 as a measure of financial vulnerability to identify those most at risk. More than one-third of adults reported that they could not afford such an expense. The groups more at risk and more likely to report that they could not afford an unexpected expense included adults on lower incomes, 40% of parents, 53% of adult renter households, disabled adults’ households, adults who were divorced or separated and adults in regions outside the south-west, south-east and London.
The Bank of England reported that credit card borrowing rose at its fastest pace in 17 years. When children live in stressed households, their physical and mental health suffers, as do their education and life chances. Increases in child poverty levels in England between 2015 and 2020 were associated with more than 10,000 additional children entering state care. Does the Minister agree with me that the volume of evidence on the stress of households now confirms the importance of uprating universal credit and legacy benefits by the rate of inflation?
Levelling up is a flagship policy that risks stalling. The phrase is disappearing from the Government’s lexicon. Rising inflation will reduce public investment and undermine the very prospects of private investors turbocharging regional growth. It will drive up regional inequalities in economic performance, life chances, health, income, education, children’s wellbeing and public services. If regional inequality is not at the heart of a growth plan, neither is wellbeing.
The Institute for Fiscal Studies observed:
“We’ll know we are on the way to levelling up when differences in health and life expectancy across the country start to drop. Sadly, that’s one measure of inequality that has clearly been moving in the wrong direction over the past decade.”
Female healthy life expectancy at birth in the most deprived areas was 19.3 years less than in the least deprived areas. For males it was 18.6 years less. ONS figures show that since early 2020, almost 400,000 people exited the jobs market with long-term health problems. The Government committed to addressing the wide inequalities in health outcomes between deprived and well-off areas, between white and BAME populations, and between north and south. So where is the promised White Paper on health disparities that was so integral to Boris Johnson’s declared mission to take “bold action” to address them? May I ask the Minister where is the White Paper? Has it been dropped?
The rising cost of living will drive more people into poverty, with serious consequences for health. New polling from the Royal College of Physicians shows that over two-thirds of people are more worried about their ability to stay warm and healthy at home this winter compared to last winter. A recent issue of highlights from the Lancet Public Health emphasises the relationship between changes in individual or household income and mental health and well-being.
The Money and Pensions Service reveals that three in 10 people—30%—report problems with mental health, up from 21%, particularly among the working-age population, linked to worse financial well-being. The Government’s health and social care Statement confirmed that the NHS backlog was rising and acknowledged that there is too much variation in social care across the country. They want to free up beds, with a focus on discharge to home or care home, to address the waiting list of 7 million. Following the scrapping of the health and social care levy, the funding increase for health and social care, based on forecasted receipts that would have been received from the repealed taxes—an estimated £13 billion per year—will now follow from general taxation. How will the Government replace the money that will no longer accrue from the health and social care levy: through raised taxes, more borrowing or public expenditure cuts elsewhere?
The levy was the answer to Boris Johnson’s promise to fix the social care crisis “once and for all”. Is it still the Government’s belief that the funding that will be taken from general taxation, instead of the hypothecated tax, will still fix the social care crisis once and for all, or has their view changed?
Given the stress on households, both economic and well-being measures must be brought into the evaluation of the decisions the Chancellor is currently considering. Market confidence needs to be restored but the public will want to understand the trade-offs the Government will now be making, and the implications for their national interest and their well-being, because currently they cannot—and they will want to know. I beg to move.
As noble Lords will have heard, many Ministers are now suggesting that CPI inflation uprating is too generous, and that perhaps some lower figure should be chosen. Does this mean that indexing is becoming a one-way bet, so that if inflation is low in September it must be stuck to, but if it is high in September it has to be rethought? What is the argument? Maybe it is that inflation is different for those on lower incomes. In fact, it is different. The ONS figures on inflation show that rising food prices were the biggest driver of rising inflation, at around 14%, but of course the poor spend far more of their income on essentials such as food. The IFS estimated that even with the energy price guarantee, from this month the poorest 1/10th will face an average inflation rate of 14%, compared with 10% for the richest. So maybe Ministers are arguing that these are very special circumstances, and that for one time only we have to move away from uprating by inflation, but let us look at what has happened since 2010.
The coalition Government limited most working-age benefits to a 1% annual increase for three years from 2013-14. The Conservative Government then froze those benefits in cash terms at their 2015-16 levels for another four years, so for seven years the value of benefits was slashed year on year, saving around £4.7 billion. Those cuts are baked in because every year future increases are a percentage of that lower value. That is before I even mention all the other cuts in benefit support—the two-child limit, the benefit cap, the bedroom tax, cuts in housing and council tax benefits, Sure Start and so much more.
Why would they do it? Ministers may say that they had no choice given the financial circumstances but let us look at a detailed study by Ruth Lupton et al, The Coalition’s Social Policy Record 2010-2015, which found that
“the poor bore the brunt of its changes to direct taxes, tax credits and benefits”.
Meanwhile, with the exception of the richest 5%, those in the top half of the distribution were net gainers. The report concluded:
“Perhaps surprisingly, overall the ‘welfare’ cuts and more generous tax allowances balanced each other out, contributing nothing to deficit reduction.”
Those austerity cuts were not needed to cut the deficit but to pay for tax cuts. Recently, when Ministers announced that they were going to cut taxes and might need benefit cuts to pay for them, this was a shift in scale rather than principle—albeit, I grant, a pretty dramatic shift in scale. I still cannot quite believe that we have seen a Government who have imperilled the stability of our entire economy, driven up inflation, interest and mortgage rates, and put pension funds at risk, then have the nerve to suggest that low-income families should pick up the bill for it.
Instability really matters on a macro scale because it shakes markets and makes us all poorer. It also matters on a micro scale because, when you can only just make ends meet, above all you need certainty. I am sure other noble Lords have had similar experiences, but I have never met so many people so scared about how they are going to manage in the weeks and months ahead. They are terrified that they cannot pay their bills, feed their kids or keep a roof over their head. Not only do we now have some 2,500 food banks, but already roughly 1,000 churches and 200 libraries have registered to become warm, welcome spaces because people cannot afford even to sit in their houses and heat them.
The problem with the rollercoaster politics we have been having is that no one trusts anything. Last night BBC News interviewed a pensioner, Betty from Sunderland, about the cost of living. She said:
“It fills you with dread. Are we going to have to start living on what little bit we’ve got saved? When that’s gone, where do we go from there?”
Faisal Islam told her the Government had decided they would after all uprate the state pension. She replied:
“That’s today. What happens tomorrow? They could change their minds by tomorrow because every day they change their minds.”
Quite so. This is not a game It is a life-or-death matter for millions of our citizens and they deserve better. I urge the Government to get a grip or get out.
Jeremy Hunt has stated that he will be keeping the most vulnerable at the centre of his attention, which is clearly right. However, he is still refusing to confirm that universal credit will be raised next April in line with an inflation figure of well over 10%. The energy price guarantee—which, of course, was very welcome—has now been reduced from two years to six months. History will judge both the politics and the economics, and will allocate blame for the mistakes made on 23 September and subsequent events. Today, however, we are focusing on what we can do to support the millions whose already fragile sense of personal well-being has been further battered by all this turmoil and to protect them from the worst effects of that £40 billion of further cuts and tax increases still to come.
The context is not promising. Inflation is at 10%; food inflation is at 14% and real wages for many are at a 40-year low. According to a recent British Psychological Society survey, 55% of people feel more anxious about being able to pay their bills than they did this time last year; more than a quarter said that worrying about money was making them feel depressed; only 27% felt confident that they will get by financially this winter, and 52% said they were concerned about not being able to afford food. Other recent surveys have shown an estimated 11 million people feeling unable to cope. Anxiety about the rising cost of living is estimated to be affecting half the population; 50% of the population report that they have had to reduce expenditure on essentials—food, toiletries and petrol—over the past few months. Use of food banks, as we have heard, including by people in full-time employment, is skyrocketing. Millions are extremely anxious about how they will be able to feed their families and children. An estimated 1 million children are in food poverty and not receiving free school meals. Fuel poverty is estimated to have tripled, with many saying that they feel too scared to open their energy bills.
This cost of living and well-being crisis requires an urgent and meaningful response. This toxic cycle of mental health problems and money worries demands immediate action from the Government, regulators, employers and firms to stop the cost of living crisis becoming a mental health crisis. Many charities, think tanks and external commentators are generating policy responses and ideas. Foremost among these are: raising all benefits, including universal credit and disability benefits, in line with inflation on 1 December; reviewing and then revising in line with inflation all benefits, not only every 12 months but every six months, starting from next April; moving all children from families living in food poverty into free-school-meal programmes; providing further targeted cost of living payments to vulnerable groups still falling through these new safety nets; strongly encouraging mortgage providers and landlords to restructure payments for those struggling with payments, with a view to minimising home possessions and evictions; requiring the appropriate regulators to work with the energy companies to ensure that they make all possible efforts to secure payment restructuring for bill payers and provide a compassionate response to customers; ensuring energy companies make further financial contributions to the financing of the energy price cap; and ensuring—this is very important—provision of adequate and accessible debt advice services and debt relief schemes to prevent people from spiralling ever further into debt.
Finally, it is vital that the Government commit to funding mental health services, as set out in the NHS Long Term Plan, and publish the promised 10-year cross-government mental health and well-being plan and the health disparities White Paper. I hope that, when the Minister winds up, he can assure me that the measures I have highlighted, and others that we will no doubt hear about today, are being urgently considered.
Finally, there is a time when you have to say, “Enough is enough”. So could the Minister also say when this Government will finally do the decent thing and call a general election?
We desperately need a fully functioning NHS, proper social care and a functioning court system—and we do not have any of them. We also need safety on our streets. These services are already under massive pressure, which will get worse due to unanticipated inflation. The last thing they need is further cuts of the kind that are being discussed these days. So, if well-being is the goal, services also have a case for some inflation protection—why are we going to protect only households and not services? At the very least, they should not be subjected to further cuts. To balance the books, we have to look elsewhere: proper taxation of excess profits in the energy sector, for example, and a sensible approach, from next April, to how far we protect the real incomes of families with above-average incomes.
Let me give some illustrative figures that I think are relative to the issue of what is in the interest of people with above-average income. If a person suffers from clinical depression or an anxiety disorder such as PTSD, their well-being—measured in terms of life satisfaction—falls by 0.7 points out of 10. Similar is true of addiction, personality disorder and eating disorders, which wreak havoc on so many families and communities—0.7 points out of 10. By contrast, if a person’s real income is halved, their well-being falls by 0.5 points or less.
Let us apply these apply these numbers to the Chancellor’s dilemma. He could be spending money on psychological treatments. Good ones exist for most mental health conditions but are simply not available to millions of the people who need them. An extra £1 billion a year here would make an incredible difference. By contrast, the Government presently spend £120 billion annually on protecting people’s real incomes. There is a huge difference there.
We could just ask: suppose we took £1 billion away from the protection offered to people with above-average incomes and gave it to mental health? What would happen to well-being? I can tell noble Lords from the evidence that the impact on well-being of giving £1 billion to mental health would be 50 times higher than giving the money to people with above-average incomes. I think that calculations for other public services would confirm the case for at least protecting them, and probably expanding them.
We constantly hear, as if it were shocking, that public expenditure is now at its highest level relative to national income than at any time since the 1940s. Of course, that is just as it should be. It is exactly right. As people get richer, the impact of extra income on their well-being declines. That is what economists for several centuries have called the diminishing marginal utility of income. But if you think about the impact of health on well-being, that remains exactly the same, however rich you are. So do the impacts of ignorance, loneliness, addiction and crime. We should be giving proper attention to the public services which can help us with the things of enduring importance to human beings; in particular, the social infrastructure of their lives.
If we want to maintain national well-being in these difficult times, the top priorities must be to protect the real incomes of the poor—I hope the Minister can say something about that—and to protect the public services on which we all depend.
Since 2010, there has been no effective strategy to tackle our central economic problem of poor productivity. Without a strategy for productivity—how are the Government to pay for it now?—we have no prospect of non-inflationary growth and increasing prosperity for all. On top of all these failures, the post-Brexit transition to a new trading relationship with the EU has been handled ineptly. Then came Covid, hammering business, employment and the national finances, as well as creating widespread fear, grief and impoverishment. After that came Putin’s invasion of Ukraine, with a further colossal disruption of trade and the disastrous increase in energy costs. So Liz Truss and Kwasi Kwarteng are not the only authors of our present national predicament, but what these callow politicians have done is criminal: at a juncture when sensitivity, caution and competence were crucial, they arrogantly, heartlessly and idiotically made our predicament vastly worse. Their fiscal recklessness has caused the pound to weaken, importing more inflation, and the cost of borrowing has soared for the Government, businesses and home buyers, in what the markets are calling the Truss premium.
At least another £35 billion of spending cuts or tax rises are required. In 2010, cuts in spending were accompanied by monetary easing; the consumer prices index in 2010 was 3%, whereas now it is over 10%. In 2022, we have to look forward to both fiscal and monetary austerity and deep recession, with all the pain and fear that this will bring. People whose pay falls far behind inflation are going to be hungry, cold and frightened.
Throwing away the reputation not just of the Conservative Party but of Britain for financial prudence, resolute control of inflation and competent economic management will cause our country to be poorer and those who are most vulnerable to live in greater poverty and insecurity for a long time to come. The cruelty of the Prime Minister’s hints and throwaway lines—for example, about de-indexing benefits and ending tenants’ security—has been chilling.
To people on the margin, an assault on their living standards will make them sick with anxiety. It will also make them bitter about inequality and the contempt they discern on the part of those who are comfortable and those who govern them. Inflation dissolves the ties that should hold our society together. It robs people of the real value of their income, their savings and such security as they have. It generates mistrust, resentment and fear.
If we are denied a general election, which is clearly what is required given the collapse of the Government and the rotten state of the Conservative Party, we must hope against hope that the new Chancellor and the new Prime Minister will reshape policy to ensure that financial stability and the trust of the markets are restored; and that in the grim process of retrenchment, the broadest backs carry the heaviest burdens and the neediest are protected, while an intelligent strategy for economic reconstruction, with due focus on well-being, is implemented. We need a Labour Government to do this.
As the noble Lord said on the cost of living crisis, this is a terms of trade effect. There will be costs and they will hit people on lower incomes in particular. If we respond by cutting public spending, those who rely on those services will be damaged even more. You will have a really bad well-being impact if you go down the route that we are beginning to think might happen.
As the noble Baroness, Lady Drake, said, the Chancellor has a handy little book that can tell him what to do: the Treasury Green Book on investment appraisal. It has supplementary guidance on well-being, which has just been updated. I commend that to the Chancellor—let us hope he is still there. I understand he is not standing to be the next leader, so let us hope he is still around.
Let us imagine that we are going to take this seriously; that we are going to have a well-being approach to handling the current cost of living crisis. What would you do? First, you would look again at the energy support package. You are giving a lot of money to a lot of very rich people. You could target that support much better and get a massively bigger well-being impact using the numbers that Richard—the noble Lord, Lord Layard—mentioned.
Secondly—we have just had this debate—the Behavioural Insights Team, which I am proud to have had a role in setting up, should be working 24/7 to give us the tools and information that can allow us to improve our energy efficiency. We are being far too timid and far too slow. All we need to do is go to Germany. German energy usage is down by 20%. They are turning off the lights at 9 o’clock in Berlin. Public buildings have been ratcheted down. There are lots of things we could do. We need to get on with this now, encouraging people and allowing them to make those really sensible decisions. So, get those going.
Thirdly, seeing the former Permanent Secretary to the Treasury in his place, I know that he will be completely with me on this. We have serious issues in the economy with labour shortages. One of the things we should be thinking very carefully about is, how do we entice the over-50s back into the workforce? What kind of incentive structures should we be providing? Are they really improving their well-being by deciding they have given up on the world of work? There are lots of things about the world of work which enhance one’s status and well-being. There really is something there.
Fourthly, please can we have a bit of stability and predictability in government policy? A very good former colleague in the Treasury was saying to me that if we did have pictures of Chancellors on the wall in the Treasury—which we do not—it would look like the “Employee of the Month”. We have had four in four months. I said this to David Cameron when we talked to the Opposition before the 2010 Election. He said, “Okay, I’ve told you what I’m thinking of doing; what would you like from me?” My No. 1 request was stability among Ministers, so that they get to be in their post for a long time and get to work well with the civil servants. I think that is massively good.
We have lots of uncertainty that is bound to spook financial markets. Uncertainty about which benefits are going to be cut, as the noble Baroness, Lady Sherlock, said, is difficult. We emphasise the poor, which is absolutely right, but I read the piece by James Coney in the Sunday Times on the fact that there are middle-income people who, equally, are very disturbed by what is going on.
The fifth point is something very close to the heart, and which I am working on in my role as chair of Pro Bono Economics. We should be working closely with charities and philanthropists. We have a proud history of generosity demonstrated powerfully by the public’s response to the pandemic and Ukraine crisis. Can we help charities that work to improve employment, boost education and skills, reduce inequalities in life expectancy, and create conditions for entrepreneurship in places that most need local economic revival? I have just come back from meeting some civil servants in Darlington and talking about philanthropy in Newcastle. Lots of things could happen there.
Andy Haldane, the former chief economist at the Bank of England, estimates that the charity sector generates £180 billion of social value every year. Philanthropic investment can bring very distinctive benefits alongside private and public sector investment. Doing things to maximise the impact of philanthropy across the country would be tremendous.
Finally, Ministers should think about the well-being of public servants. The prospect of cuts in real pay and redundancies is bound to damage morale. Treating them with respect and thanking them for their work costs nothing and would be a very good start.
“The only way to break even this year will be to cut teaching and support staff, reduce educational opportunities and school visits, and keep the heating off.”
The impact on well-being for this generation of children, already affected by Covid, will be obvious.
All churches are reporting rapid escalation in food bank support and food bank use. Over the past year, I have personally visited many food banks and meals services in urban and rural areas. In 2011, one-third of churches were involved in supporting food banks. By 2016, that had risen to two-thirds. Last year, it was 80% of churches in rural and urban areas. The Trussell Trust estimates an increase in the use of food banks of 128% since 2015. I wonder: can the Government begin to imagine or plan for a time when food bank use decreases and some of our food banks go out of business, as they all want to do?
As other noble Lords have argued, the problems are deep seated. Poverty has been rising for a decade. The impact of Covid and now the cost of living crisis multiply the effect on health and well-being. We as a society should never grow used to children being hungry or families being eroded by lack of hope and an inability to meet basic needs. Many of the local support services and small charities that have sustained their communities during Covid are now overstretched. The infrastructure that has formed a safety net and contributes so much to well-being is now itself vulnerable.
I recognise the Government’s constant pledge to help the poorest, but I underline from the evidence and experience locally that the situation is getting worse, not better, and that has been the trend for many years. I repeat the call that many others have made for benefits to be increased in line with inflation; for the proper, generous funding of schools; and for co-ordinated support for charities to help the poorest. Above all, in the light of the Budget and the events of this week, I call on the Government to consider still more deeply this new and different metric, and to aim not simply for economic growth but for greater, deeper equality and fairness as a measure of society’s well-being.
As the noble Lord, Lord Howarth, and others have mentioned, the research of Kate Pickett and Richard Wilkinson in The Spirit Level, and the stream which has flowed from that, demonstrate the connection between measures of inequality in a society and its whole well-being. The most equal societies are also the more content. Those most in need want and need to know that the Government have abandoned trickle-down economics and are applying a spirit level of fairness to the economic plans of the nation.
We need to keep alive a vision for the United Kingdom where no child is hungry; where the safety nets are robust; where child poverty is reducing; and where food banks are in decline. The well-being of the nation is now very fragile. To the incoming Prime Minister, I say, “Please don’t make it worse. Do all you can to make it better. Don’t allow the costs of the economic downturn to be borne by children and the poorest”. Blessed are those who consider the poor.
I have three suggestions for the Chancellor on public well-being. First, make sure that the vulnerable and poor do not bear the price of austerity. This is a national crisis, and we need to approach it with the same “all in it together” spirit that we have displayed in previous crises in our history.
The Chancellor could start, for example, by opening discussions with the TUC and following the example of ex-Chancellor Sunak when the furlough scheme was introduced. I think all sides in those talks were surprised by the positive outcome. This would be more practical and useful than introducing yet another anti-trade union law, in the form of the Bill that is to be published. The current Chancellor has taken a fresh perspective on things; he should now attempt to stop this Government smacking the unions. Specifically, the Chancellor should prioritise benefit claimants, particularly those on universal credit, and increase the real value of UC, as was done in the lockdown. That was important then and would be important now. That was a recommendation, by the way, of the Economic Affairs Committee of the House of Lords.
Secondly, the Chancellor should protect our already creaking public services. Whether it is health, social care, education, benefits, the police and justice, prisons or many others, they are all struggling and are ill equipped to cope with a new period of austerity. It is tax that must take the strain to avoid a further deterioration in our public services. The financial burdens must fall on those best placed to pay.
My final suggestion is that, having carried through Brexit—a decision I still bitterly resent, by the way—we must get Brexit done properly by aligning the UK very closely with the EU single market. Our export performance has been woeful since Brexit. Firms, especially small and medium-sized enterprises, have given up trying to export to the EU because of the hassle and red tape involved. The existing treaty is not working, not just in Northern Ireland but between Britain and the EU generally. We need to reset the relationship with the EU and do it quickly. There is much to do, particularly by the rich and comfortable, to help poorer citizens on low pay and benefits, who are more dependent on public services, to get through this crisis. Let there be no more wallowing in past glory. In his Statement in a couple of weeks, the Chancellor must relegate nostalgia to the Last Night of the Proms.