Cost of living: Prime Minister’s aid will help you and at the same time make things worse | Business Newsletter

Let’s start with perhaps the most important question: does this make a difference?

The short answer is yes. Stimulation Prime Minister announced today is big – huge. It will affect all households and some – especially those with lower incomes, pensioners and many pensioners – will receive overwhelming one-time cash payments.

For the “average” household, for example, the fact that the energy bill price reduction has been doubled will mean that the bills are no longer in completely unprecedented territory; instead, they are only likely to hit their highest levels since the early 1980s.

In short, this pack won’t stop feeling pain in the coming year; however, it will certainly mean it will be less painful in the short term than what happened.

And the fact that most of this money is going to lower-income households, who have been hit hardest by cost of living crisis is particularly important. One of the disadvantages of inflation is that it is a very regressive economic phenomenon: it tends to affect the poorest.

This latest package is better tailored to this problem than the missing package introduced by the prime minister earlier this year.

Many would say that this is the package that Rishi Sunak should produce in the spring announcement in March, and they have more than half a point.

They could also point out that contrary to what he said on Thursday, what we were experiencing was all too clear at the time. But there’s no point in staying in the past. This support package is broad and progressive, and will help many households in the short term.

The big figures in packages/budgets these days are mostly one-time payments but it’s important to note that there’s a long-term element to that.

For the prime minister also announced that next year’s welfare and pension will be increased in line with the inflation figures as of September. This is one of those lines that can easily be obscured, but let’s reflect on it for a moment.

Inflation is likely to peak around the fall of this year – possibly in October – at more than 10%. In other words, September’s inflation is likely to be very high. So the prime minister is planning to increase pensions and pensions a lot.

It’s hard to know how much this will cost, partly because we still don’t know what inflation will look like but more importantly because he’s decided to publish all this outside of the traditional budget. , so it’s not under any obligation to display its work.

But my general calculations show that this calculation could lead to costs up to £25 billion.

Now consider that the complete package announced today is £15 billion and you will understand what we are talking about.

This is, again, a lot of money.

Some, including Mr Sunak, would argue that this was the right decision given the crisis the UK is facing. What is remarkable, however, is that this is a very different kind of message from the one he was trying to send us just a few weeks ago.

For months, he has insisted that we should be careful about borrowing more money. Today’s plans involve borrowing at least another £10 billion.

For months, he warned of the risk of inflation. His speech today began with a lengthy section on the risks of the upside. However, this package, all told, actually looks very inflationary.

It will put more money in the pocket and people will spend more, which in turn will push up prices. So far, fighting inflation has also made the job of the Bank of England more difficult, pushing up demand in the economy significantly.

To some extent, this only underlines the difficulty of policymaking right now.

The energy markets are sending us a message: there are not enough energy supplies to meet our needs for these things. One response is to allow people’s spending to drop so that demand matches supply; but that involves a recession.

Another response is to increase demand. But that has the potential to increase inflation into the economy, which is more difficult to reduce. This also makes it more likely that the Bank will have to raise interest rates in the coming months.

Everything has been bumpy. This bundle, as necessary as it can feel, can make things harder, especially when the short-term sugar rush of those goodies runs out.