UK households struggling with the cost-of-living crisis will see an “enormous easing” in the pressure next year with benefits and pension rises outflanking inflation, Chancellor Rishi Sunak said on Thursday.
Earlier, Mr Sunak delivered a support package worth at least £15 billion ($18.9bn), handing every household £400 off their energy bills and raising support to pensioners and those on low incomes.
He said he would “continue to act” if energy prices and inflation remained high next year but predicted that budgets should be under less pressure for those in receipt of pensions and welfare benefits.
Mr Sunak had been asked by Martin Lewis, the founder of the Money Saving Expert website, whether the Treasury might have to step in again next year if the crisis had not abated.
He responded that he had “always been responsive to the situation the country is going through” during his tenure.
Mr Sunak referred to the fiscal support packages such as the furlough scheme to help Britain through the coronavirus lockdowns, along with his first cost-of-living package in February.
But he indicated that support next year was less likely to be needed with pensions and benefits going up due to inflation, which has reached a 40-year high.
“None of us know what energy prices are going to be next year," Mr Sunak said.
“But what I can tell you now and what people should be reassured by is that the way our system works, benefits and pensions next year are likely — subject to a review that has to happen legally — to go up by quite a significant amount because the inflation rate that decides that is set in September.
“That is likely to be a relatively high inflation rate in September, so that is what will happen next year for everyone’s benefits and pensions, and that increase is most likely to be significantly higher than the inflation we will see next year on all the forecasts that are available.
“So that should give people an enormous sense of reassurance that we are providing the help today to help them get through to that point and that actually next year there is going to be an enormous easing as all their incomes go up considerably compared to what the increase in prices is.”
In the House of Commons, Mr Sunak said his fiscal package was worth £15bn.
But officials later conceded that there was a hidden £6bn cost to the announcement over the next five years because the original £200 rebate for energy bills, which was announced in February and doubled by Mr Sunak on Thursday, will no longer be paid back by consumers as originally planned.
Mr Sunak denied that he had been slow to announce support for the public, saying Ofgem’s indication that the energy price cap could rise by a further £800 in October had set the plan into action.
“I wanted to wait for enough time so I had a sense of the scale of the problem and then we could size our support appropriately, and that’s what we’ve done,” he said.