The invasion of Ukraine will have a “significant economic impact on the cost of living in the UK” and government intervention is needed to support those “who are hit hardest by price rises”, a cross-party committee of MPs has said.
In a report published today (23 March), the treasury committee has warned there is no escaping the economic fallout of the “illegal and unprovoked invasion of Ukraine”, and the government must provide financial assistance for low-income households.
Though the committee commended the decision of the UK government, alongside its international partners, to implement economic sanctions against Russia, it emphasised the need for the government to take action to ensure that the UK economy, and low-income households, are protected as much as possible.
The MPs warned that the UK is not protected from the economic consequences of sanctions on oil and gas, and as the price paid for oil in the UK is dependent on the global market, any further sanctions will inevitably impact UK households and businesses.
The report is published in the wake of national conversations about the cost of living. The report references comments from the chief executive of the Resolution Foundation think tank, Torsten Bell, who told the committee that the whole country will “feel squeezed through 2022”. “You [will] see really hard questions for the lowest-income households because of the £20 a week [uplift] removal from Universal Credit.”
Last week, Money Saving Expert founder Martin Lewis expressed his concern over the surge in the cost of living. He told the BBC’s Sunday Morning: “Just on energy alone, on a conservative estimate within one year, we’re talking about bills going up by £1,300 [by October].
“We’re going to have about ten million people in fuel poverty. We have a real, absolute poverty issue going to come in the UK, with food banks oversubscribed, and debt crisis agencies do not have any tools.
“I need to say, as the Money Saving Expert who’s been known for this, I am out of tools to help people now.
“It’s not something money management can fix; it’s not something that for those on the lowest incomes telling them to cut their belts will work. We need political intervention.”
As the New Statesman reported earlier this week, the cost of living was a real concern prior to Russia’s invasion of Ukraine, with households already “facing the biggest squeeze in living standards for 70 years” as a result of a “dystopian combination of higher prices, lower wages, higher taxes and lower benefits”.
The treasury committee report warns that though it is currently not possible to quantify the total cost of sanctions to the UK economy, that cost, combined with the already present pressures in the UK on the cost of living, will impact the whole country, and will be felt particularly by low-income households. As a result, the report recommends that the government must take further action to alleviate the cost.
The committee did not go so far as to recommend specific actions, but the report sets out a number of approaches that were suggested as part of their inquiry. Jagjit Chadha, director at the National Institute of Economic and Social Research, recommended a number of policy actions, such as: extending the Universal Credit scheme; introducing a winter grant scheme to help households with rising energy bills; providing more support for food banks; delaying the NI tax hike; and considering a temporary income tax rise on higher earners.
Commenting on the report, chair of the committee, Mel Stride MP, said: “The UK has rightly imposed considerable and unprecedented sanctions on Russia. As a committee, we condemn the inhumane actions of President Putin and are united in the view that we must continue to press forward with significant sanctions to cause maximum damage to Russia’s economy in order to persuade Putin to stop.
“The committee will continue to investigate what additional tools we have in our armoury to bear down on Putin’s aggression and to further damage the Russian economy and its ability to fund this war.
“This war will also have economic consequences here at home, and while these are worth bearing to support Ukraine in their fight for freedom, it’s becoming increasingly clear that the government will need to support those who are hit hardest by price rises. Recent reports show that the public finances are in a stronger position than anticipated, and the Chancellor should use this additional fiscal firepower to bring forward support for those on the lowest incomes.”