The Bank of England yesterday pursued another interest rate hike – its third in a row. In another blow to households coping with the crisis, Boris Johnson returned from Saudi Arabia empty-handed
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Households are facing rising borrowing costs, just as it emerged that almost eight million people are already behind with at least one essential bill.
Despite warnings from campaigners, the Bank of England yesterday pushed ahead with another interest rate hike – its third in a row.
And in another blow to households battling the crisis, Boris Johnson returned empty-handed from Saudi Arabia yesterday after his failed trip to the Gulf to beg for more oil production.
Most mortgage borrowers will not be affected by the jump in the base rate from 0.5% to 0.75%, as they benefit from fixed rate agreements, but it will affect those with variable terms.
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Online broker Trussle said the hike could add a further £316 to the average annual mortgage bill and means typical repayments for those affected have jumped by £972 a year since December.
Millions of long-suffering savers could benefit, but experts say banks are under no pressure to pass on the new rate.
The Bank of England insisted the hike was needed to try to calm soaring inflation which is already at a 30-year high of 5.5% and which it predicted yesterday could reach 8% or more in the coming months.
He said Russia’s invasion of Ukraine “resulted in further significant increases in the prices of energy and other raw materials, including food prices.”
Kate Bell, head of the economy at the TUC, said: “In the midst of a cost of living crisis, this is the last thing struggling families need. The Bank of England made the wrong choice, but the government must not hide behind it.
Pressure is mounting on Chancellor Rishi Sunak to delay a National Insurance increase, announce an increase in benefits and provide support for households expected to be hit by April’s energy price hikes.
Meanwhile, a study by the Money Advice Trust found that one in seven adults – or 7.9million – are already late with at least one bill.
Chief executive Joanna Elson said: “Millions of households are on a collision course with the cost of living crisis. The Chancellor has an opportunity to change course and help ease some of that pressure.
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Citizens Advice says around five million adults say they already don’t have enough to cover the average £60-a-month April jump in energy bills.
But with warnings average bills could rise by £145 a month from October, the charity says, 14.5million people could find themselves unable to pay.
And after the Prime Minister’s Saudi mission failed, Tory MP Robert Halfon warned that Britain is ‘heading for a de facto lockdown’ as parents ‘cannot afford to take their children to school. ‘school’ and gas prices are forcing car-dependent workers to stay home.
A government spokesperson said: ‘We recognize the pressures people are facing with the cost of living which is why we have put in place a generous £21billion support package.
What Sunak needs to do in Wednesday’s spring statement
Prof Richard Murphy, Professor of Accounting Practice, Sheffield University Management School and Director of Tax Research UK
Right now this country is facing the biggest financial crisis I have ever known.
Not because of the Covid, nor the national debt (well under control), nor the war. This is because of rising energy prices and other prices that households across the UK are facing.
In 2021, the average household energy bill was just under £1,200. In April, this will increase to nearly £2,000.
Worse still, some are suggesting that oil and gas shortages due to war in Ukraine will increase this cost to £3,000 from October this year.
On top of that, petrol and diesel costs are rising rapidly, and it’s suggested they could hit £3 a liter in 2022 – a doubling in price.
Food prices are also rising due to wheat shortages due to the war in Ukraine.
Add all these factors together and the average UK household could see their monthly cost of living rise by £300 a month in a year, which is money most don’t have. And, as my research has shown, much of this is due to massive corporate profits driving up food and energy prices to exploit the shortages that currently exist in the world.
Julian Hamilton/Daily Mirror)
So what can Sunak do?
1. Be very bold next week. DIY will not be enough. Adjusting benefits won’t be enough either, although restoring the universal £20 credit cut would help. Too many households that receive little or no benefits are also going to be affected
hard by that.
2. So Sunak must first declare a crisis and say that he will spend whatever is necessary to prevent British households from going bankrupt by the millions. That means spending whatever it takes, like we did during Covid, and creating the money to pay for that using quantitative easing. None of this costs taxpayers anything, just as Covid did not.
3. Next, it must reduce road fuel prices to prevent them from driving up all other prices. This means reducing VAT and other taxes to keep these prices at 2021 levels. This is the price to pay for beating inflation.
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4. After that, he has to face the energy companies. It must introduce a tax on excess profits. Energy companies must be made to pay.
5. And then it has to be really radical. We need subsidized energy prices for households. This amounts to requiring that the price of energy consumed by an average household be reduced to its 2021 level. The government must subsidize this cost reduction. If this were done, only large houses should be required to pay the market price for any energy they consume above the average consumption. This would encourage them to take energy saving measures and would be in line with the green agenda. This makes it fair, affordable and environmentally friendly.
If we do these things we have a chance of balancing the finances of most UK households over the next year. Without these measures, the pain will drive millions into debt, and worse. If Sunak cares about this, he needs to act now.