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A not so happy new year for the government as cost-of-living crisis looms large

By Joe Cooper
11 January 2022

By Joe Cooper

To say that this has been a difficult start to 2022 for the government would be an understatement. As speculation about the Prime Minister’s alleged drinks party in May 2020 continues to linger, the Government is faced by a much larger train coming down the tracks: the impending increase in the cost of living for the British public.  

On 7 February, energy watchdog Ofgem will set the new maximum price for energy bills. Experts predict that this cap may rise by more than 50 per cent this year, taking the average household annual bill to nearly £2,000. Factoring this in with the introduction of the Health and Social Care Levy with the new tax year beginning in April, households across the UK are facing a squeeze after what has already been an incredibly difficult two years as a result of the COVID pandemic.   

The good news for the government is that there are a number of options it can take to mitigate the impact on households across the country.  Labour’s Shadow Chancellor Rachel Reeves has advocated for the removal of VAT on domestic energy costs for a year until prices are brought back under control. Though the Prime Minister had seemingly ruled this out last week, he reportedly met with the Chancellor over the weekend for crisis talks, with the VAT removal said to be high up on the list of solutions. Indeed, cutting VAT on energy bills is something which the Prime Minister has previously supported ahead of the 2016 EU referendum.  

Other proposals touted include cuts to green levies, increased funding for the warm homes discount, and targeted support for those households most likely to be affected by the rising costs.  

Early polling shows support from the public for Labour’s proposals, with YouGov revealing that 83 per cent of the public would back the scrapping of VAT on energy bills. Yet at a time in which his party has suffered the first sustained deficit in the polling since the 2019 election, the Prime Minister will be conscious of avoiding any move which looks to hand Labour the initiative when it comes to tackling the big issues. Indeed, this is exactly what Labour is looking to do with today’s opposition day debate, aiming to force a vote on a VAT cut to home energy bills. Attention on the issue is unlikely to subside in coming days. 

While polling leads come and go, a significant cause for concern for the government will be on the implications that the ongoing crisis could have on its new electoral base in constituencies across Wales, the North and the Midlands. YouGov polling in “Red Wall” constituencies found that 79 per cent of voters believe that the Prime Minister doesn’t understand their cash pressures, while showing 83 per cent support for scrapping VAT. These constituencies, won by  the Conservatives for the first time in 2019, are likely to be among those most affected by the coming squeeze, a fact which their MPs on the backbenches will be all too aware of.  

Though we are potentially another two years out from the next general election, failure to act decisively to tackle the ongoing crisis risks not only setting in perceptions about the government’s competence in the key seats that the party needs to hold, it could also heighten tensions between the government and its own back-benches.