MAGGIE PAGANO: Government must act on cost of living fears

The politicians should count themselves lucky that we are in the dog days of August, otherwise yesterday might have gone down in the history books as Black Friday. 

From start to finish, the bad news just kept coming in, on every front. 

First came warnings from the NHS that the country faces a ‘humanitarian crisis’ as thousands of people may be forced to sacrifice food for heating.

Struggle: Are we in a greater danger of talking ourselves into a sense of capitulation?

In a letter to Chancellor Nadhim Zahawi, NHS bosses wrote that the failure to act swiftly would lead to greater ill health but also an even greater burden on the health service already creaking from the postCovid backlog of patients.

It’s a rare political intervention by the NHS. Yet in many ways the NHS leaders have a point, and it’s a broader economic point worth making. 

If people are forced to choose between food and heating, they will inevitably suffer from more sicknesses and long-term inequalities. As we know to our cost, a healthy workforce is a wealthier and happier one. 

What’s more, energy bills are set to rise. University of York research suggests even the more comfortable middle classes will be in fuel poverty, with many paying more than £5,000 a year for energy. 

In 2019, fewer than a tenth of households spent more than 10 per cent of income on energy. By January next year more than half the UK will be spending more than a tenth while those in the bottom income decile will spend more than a fifth of their income. 

And it’s a double-whammy: home owners will also have higher mortgage payments. 

The gloomy mood wasn’t helped by the latest budget deficit figures showing the UK borrowed another £4.9billion in July, as interest rate payments on our £2.4trillion debt jumped to £5.8billion. 

It was enough to send sterling tumbling more than a cent against the dollar, taking the week’s fall to more than 2 per cent – and the worst performance since June last year. 

Yet more frightening is that UK and European gas and power prices are continuing to rise at scary levels. 

The global outlook for gas is so dire that some analysts claim our temporary energy trade shock is in danger of becoming a once-in-a-generation threat to the solvency of thousands of households and small businesses on a par with the financial crash.

Higher prices are having a disproportionate impact on small businesses. One Norfolk brewer I spoke to this week, David Holliday, is paying £23,000 more in energy this year than last. 

Brewing is energy-intensive so he can’t cut costs or put up prices too high. There’s only one option: he will have to save elsewhere – by not employing more staff or investing in new machinery, leading to lower growth. 

Thousands of small business owners face similar quandaries. They add up to what Martin McTague, chairman of the Federation of Small Business, calls a ‘toxic recipe for the future health of the economy’. More worryingly, a recipe for recession. 

There was even more gloom from the GfK’s consumer confidence survey which hit its lowest level since it started in 1974. 

Yet it is hardly a surprise that everyone is downcast. It’s hard not to be with headlines screaming record inflation and higher energy bills to come. It’s only logical that most households draw in their spending. 

But are we in a greater danger of talking ourselves into a sense of capitulation? That there is nothing that can be done about financial events beyond our control? 

The answer is that we probably are in danger of talking ourselves down too much: it’s part of the British disease. But we also know the Government will have to move. 

The question is when and how. We know the Treasury is working on options, as are Liz Truss and Rishi Sunak’s teams. 

We also know there aren’t many choices available, and that they will cost a fortune – at least £30billion. It’s either more handouts via the benefits system, energy caps for small businesses via the rates system, cutting VAT and/or green taxes or, indeed, Labour’s proposal of freezing the price cap. 

More importantly, the new prime minister needs to get on with it – make an immediate televised address outside 10 Downing Street on September 6, spell out the bones of a furlough-style energy scheme and announce an emergency budget. 

Quickly. Otherwise it will have been Black Friday.

This post first appeared on Dailymail.co.uk