London Daily

Focus on the big picture.
Monday, Jul 13, 2026

Cost of living: Chancellor's aid will help you and make things worse at the same time

Cost of living: Chancellor's aid will help you and make things worse at the same time

Let's begin with perhaps the most important question: will this make a difference?

The short answer is yes. The stimulus the chancellor announced today is big - very big. It will affect all households and some - especially those on lower incomes, benefits and many pensioners - will get outsized one-off cash payments.

For the "average" household, such as it is, the fact that the energy bill rebate has been doubled will mean bills are no longer in totally unprecedented territory; instead they are only likely to hit the highest level since the early 1980s.

In short, this package will not prevent the coming year from feeling painful; however, it will certainly mean it is less painful in the short run than it would otherwise have been.

And the fact that a lot of this money is dedicated to lower income households who are hardest hit by the cost of living crisis is especially important. For one of the iniquities of inflation is that it is a very regressive economic phenomenon: it tends to affect the poorest the most.

This latest package is far better tailored to this problem than the deficient one introduced by the chancellor earlier this year.

Many would say that this is the very package Rishi Sunak should have produced in the spring statement back in March, and they have more than half a point.

They might point out, too, that contrary to what he said on Thursday, the outlines of what we are currently facing were already clear back then. But no point in dwelling on the past. The package is generous and progressive, and will help many households in the short term.

The big figures in today's package/budget are primarily one-off payments but it's also important to note there is a longer-term element in there.

For the chancellor also announced that next year's benefits and pensions will be increased in line with the inflation figure as of September. This is one of those throwaway lines which could easily be glossed over, but let's ponder it for a moment.

Inflation is likely to peak around this autumn - probably in October - at over 10%. In other words, September's inflation is likely to be very high. So the chancellor is planning to increase benefits and pensions a lot.

It's hard to know how much this will cost, in part because we don't yet know what inflation will be by then but just as if not more importantly because he has decided to announce all this stuff outside of a traditional budget, so isn't under any obligation to show his workings.

But my broad-brush calculation suggests this uprating could end up costing as much as £25bn.

Now consider that the complete package announced today was £15bn and you get a sense of what we're talking about.

This is, again, a lot of money.

Some, including Mr Sunak, will argue that this is the right decision given the crisis the UK is currently facing. However it's worth noting that this is a very different kind of message to the one he was attempting to give us only a few weeks ago.

For months, he has underlined that we should be careful about borrowing extra money. Today's plans involve borrowing at least another £10bn.

For months he has warned about the risks of inflation. His speech today began with a long section about the risks of rising prices. Yet this package, all told, looks very inflationary indeed.

It will put a lot more money into pockets and people will spend more which in turn will push up prices. So far from combating inflation, it makes the Bank of England's job even tougher, pushing up demand in the economy significantly.

To some extent this just underlines the difficulties of policymaking right now.

Energy markets are sending us a message: there is not enough supply of energy to satisfy our demand for the stuff. One response is to allow people's spending to decrease so demand matches supply; but that involves a recession.

Another response is to pump up demand. But that poses the risk of embedding inflation in the economy, making it even more difficult to reduce. It also makes it far more likely that the Bank will have to raise interest rates in the coming months.

Things are already bumpy. This package, necessary as it might feel, may make things even bumpier, especially once the short term sugar rush of those giveaways wears off.

Newsletter

Related Articles

0:00
0:00
Close
UK Prime Minister Keir Starmer Offers Condolences Following Death of Qatar’s Father Amir
UK Regional Innovation Policy Focuses on Research Clusters Across Scotland, Wales, and Northern England
UK Corporate Transparency Rules Set to Become More Strict Under Modern Slavery Reform Plans
UK Civil Service Estate Strategy Shifts Government Activity Away From London
UK Strengthens National Security Powers Through New Threat Designations
Greater Manchester Police Conduct Drink and Drug Driving Operations After Football Events
UK Government Advances Darlington Economic Campus With Construction Milestone
UK Authorities Increase Football-Related Security Operations After Tournament Fixtures
UK Invests Fifty-One Million Pounds in National Cryogenics Facility and Regional Innovation Hubs
UK Moves Toward Tougher Modern Slavery Reporting Rules With Corporate Penalties
UK Government Reports Forty-Three Million Pounds in Savings From Office Estate Reform
UK Government Expands Civil Service Regional Strategy With Manchester and Darlington Campus Projects
UK Designates Iran’s Islamic Revolutionary Guard Corps as National Security Threat
United Kingdom Financial Markets Monitor Business Response to Economic Policy Changes
Scottish Renewable Energy Expansion Highlights Need for Faster Grid Development
Wales and Regions Strengthen Focus on Economic Development Through Tourism and Investment
Retail Industry Warns High Street Businesses Remain Under Pressure
Police Chiefs Highlight Growing Challenges Managing Protests and Public Order
Agriculture Leaders Seek Clarity on Post-Brexit Farming Support and Environmental Rules
Transport Unions Warn of Further Industrial Action Over Pay and Working Conditions
Welsh Tourism Sector Reports Strong Growth Driven by Domestic and International Visitors
National Infrastructure Review Gains Support as Leaders Seek Faster Project Delivery
Financial Markets Assess Impact of United Kingdom Corporate Tax Policy Changes
Northern Ireland Assembly Debates Cross-Border Trade and Infrastructure Cooperation Plans
Government Opens Consultations on Housing Reform and Planning System Changes
Scottish Government Faces Pressure to Accelerate Offshore Wind and Grid Expansion
National Energy System Operator Warns Grid Investment Is Needed for Future Electricity Demand Growth
United Kingdom Research Council Invests in Artificial Intelligence and Biotechnology Innovation Hubs
United Kingdom Expands Oversight of Skilled Worker Visa Sponsors Amid Migration Debate
Cross-Party MPs Call for National Infrastructure Strategy Review to Accelerate Economic Growth
Prime Minister Announces One Billion Pound NHS Funding Package Ahead of Winter Pressures
Bank of England Signals Cautious Approach to Interest Rates as Inflation Remains Above Forecasts
World Cup Visitors Turn American Big-Box Stores Into Souvenir Stops
Netflix Weighs Always-On Channels, Bundles and Short-Form Video
Passenger Is Pulled Partly Outside Ryanair Jet After Window Fails Mid-Flight
Innovation-led growth strategy
Public service reform pressure
Defence and industrial security
Labour leadership transition and economic reset
Northern England Pushes for Greater Influence in Britain’s Future Economic Model
UK Technology Strategy Focuses on Life Sciences, Digital Innovation and Research Investment
Britain and United States Maintain Focus on Pharmaceuticals Cooperation and Industrial Growth
UK Public Services Face Continued Pressure as Government Promises Visible Improvements
Regional Economic Power Becomes Key Theme in Britain’s Next Political Phase
Britain Expands Support for Small Businesses as Firms Seek Better Access to Finance
UK Economy Remains Central Political Challenge as Cost of Living and Growth Concerns Persist
National Health Service Introduces New Workplace Reviews to Improve Conditions for Healthcare Staff
UK Life Sciences Sector Secures More Than Three Billion Pounds in Investment to Support Innovation
Britain Strengthens Defence Strategy as Security Concerns Reshape Military and Industrial Policy
Andy Burnham Promises Stronger UK Defence Industry and Expanded Domestic Production
×