Reassurance needed on long term cost of living pressures

Finance Secretary Kate Forbes has welcomed the short term action announced by the Chancellor of the Exchequer, but warned more support is needed for households and businesses as the cost of living crisis worsens.

Following calls from the Scottish Government, the UK Government has taken steps to ensure that cash grants, rather than loans, are provided to those on lowest incomes. Ms Forbes has also cautiously welcomed the decision to introduce a Windfall Tax on energy companies benefiting from significant profits but commented that it means Scottish industry is disproportionately funding interventions across the UK.    

Responding to the Chancellor’s statement, Ms Forbes has said UK Ministers should have acted earlier and gone further to provide more support that would make a real long term impact, including following the Scottish Government’s lead by doubling the Scottish Child Payment to £20 per week – which is due to increase to £25 from late 2022 helping lift an estimated 50,000 children out of poverty in 2023-24.

Ms Forbes said:

“Many households will be relieved to see the support belatedly announced today, but we still need a long term solution to the cost of living crisis and reassurance that the UK Government is going to tackle long term inequalities rather than provide one-off bursts of crisis support.

“Rather than listen to our plea for a comprehensive funding package that fully addresses the unprecedented rise in the cost of living and uses the full £30 billion of fiscal headroom, this piecemeal approach makes it highly likely that more support will be needed later when energy prices rise significantly in the autumn.

“There is also a severe lack of support for businesses – many of them are still struggling to recover from the pandemic and now face crippling increases in energy costs and the damaging impacts of Brexit on supply chains and the labour market. Without urgent economic support there is a real risk that the UK economy is heading for a recession.

“Inflation is at its highest levels in 40 years and the UK Government’s failure to fully invest in increasing incomes, tackling inequality and boosting economic competitiveness will only risk pushing households into further debt and poverty

“The UK Government has almost £30 billion of fiscal headroom, spending only half of this during a cost of living crisis does not go far enough, especially when a further £5 billion from the Windfall Tax will be raised.

“The introduction of a windfall tax is a start, but as a stand-alone measure this means Scottish industry is carrying the weight of UK-wide interventions.  

“The removal of the £20 Universal Credit uplift last year was a hammer blow to hard pressed families and the Chancellor’s failure to restore it and increase it to £25 only places a disproportionate burden on the shoulders of those who need help most. The statement was also worryingly silent on public-sector pay with no related consequential funding, when the lowest paid need urgent assurance in the face of rising inflation.

“The refusal to reverse the National Insurance increase implemented in April and temporarily suspend VAT on household energy bills will also cost families hundreds of pounds annually at a time when their budgets have never been more squeezed.

“The Scottish Government has already taken action to support people, communities and businesses as much as possible, with almost £770 million per year invested in cost of living support. We have increased eight Scottish benefits by 6%, closer to the rate of inflation, and introduced a range of family benefits not available elsewhere in the UK.

Background

The Finance Secretary wrote to the Chancellor calling for the UK Government to go further in tackling the cost of living crisis.

The Scottish Government has taken the following steps, within its devolved powers, to help households and businesses through the cost of living crisis:

• introduced £150 council tax payments – reaching 1.85 million (73%) of all households
• invested £10 million to continue the Fuel Insecurity Fund
• uprated eight Scottish benefits by 6%
• increased the Scottish Child Payment to £20 from April 2022 and to £25 from late 2022 – lifting an estimated 50,000 children out of relative poverty in 2023-24
• increased support for home energy efficiency
• introduced free period products – with legislation coming into force later this year making this a statutory right
• invested £41 million in 2022/23 in the Scottish Welfare Fund
• mitigated the benefits cap and bedroom tax through Discretionary Housing Payments
• invested £113 million in Tackling Child Poverty this year, including £53 million for Parental Employment, £15 million for Parental Transition Fund, £2 million for Challenge Fund
• invested around £12 million in debt and welfare advice
• expanded Free School Meals
• increased the school clothing grant up to £120 for primary and £150 for secondary aged pupils