UK sanctions against Russia could have a “catastrophic and long-lasting” effect on the country, but they will come at a cost and the poorest households will be hit hardest, MPs have warned.
A report by the treasury select committee said the UK was not protected against the economic impact of sanctions against Russian oil and gas, and that soaring prices will intensify the crisis in the cost of living for the whole country.
Low-income households will suffer the most from surging fuel and energy bills caused by the sanctions, and further punitive measures will inflict yet more pain, it found.
The cross-party group of MPs said the effect on the UK is a “cost worth bearing” to help Ukraine in fighting for its freedom and to damage Russia’s ability to fund the war.
But it called on the government to support households, particularly those on the lowest incomes, and protect them from rocketing prices as it moves ahead with sanctions.
“If energy sanctions and reductions in demand are introduced in line with the statements made by the United States, EU, the UK and others, then the impact on Russia’s economy could be catastrophic and long lasting," said the committee’s report.
“There will be a cost to the UK economy of the economic sanctions imposed on Russia.
“It is not possible yet to quantify that cost, but the committee believes that … it is most definitely a cost worth bearing in order to aid Ukraine in opposing Russian aggression.
“However, 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.”
Pressure is mounting on Chancellor of the Exchequer Rishi Sunak to offer some much-needed protection from the cost-of-living squeeze in Wednesday’s spring statement.
Government borrowing figures released on Tuesday suggested that, while February’s out-turn was higher than forecast, he is on track to significantly undershoot full-year official independent forecasts, which offers room for support measures.
“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," said Mel Stride, chairman of the treasury committee.
“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.”
The committee said one of the boldest moves of the financial sanctions package so far has been measures levelled at the Russian Central Bank, which have denied access by Moscow to half of its reserves.
This comes on top of the energy sanctions, which are likely to cause “significant” damage to the Russian economy, it said.
But it urged the government to clarify the guidance to businesses involved in implementing sanctions and to boost resources for the Office of Financial Sanctions Implementation.