London Daily

Focus on the big picture.
Saturday, Aug 08, 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
Australian Crew Evacuates Seriously Ill American From Antarctica in Midwinter Darkness
Trump’s Top General Seeks an Exit Strategy From Iran War, Report Says
Brock Lesnar Retires From Wrestling, Closing a Career of Rare Athletic Range and Lasting Controversy
Welsh First Minister Raises Independence With UK Prime Minister in First High-Level Call
UK Maintains Severe Terror Threat Level as Prevent Report Highlights Online Radicalization
YouGov Poll Shows Labour Favourability Improves as Reform UK and Greens Lose Ground
Brexit Campaigner Arron Banks Admits Hiring Private Investigator to Examine Journalist
Robert Jenrick Leaves Conservatives for Reform UK in Major Parliamentary Defection
July 2026 Was England and Wales’ Driest Month on Record, Met Office Says
UK Government Considers Public Inquiry Into Jeffrey Epstein’s UK Connections
Trump-Era Policy Shifts Test the Boundaries of U.S. Institutions
UK Drought Cuts Harvests and Raises Food-Security Fears
UFO: Pentagon Releases Video of Unidentified Object Tracked Over Middle East
US Health Secretary: “I’m Not Afraid of Germs — I Used to Snort Cocaine Off Toilet Seats”
Ukraine Tells Senate Republicans Its Drone War Offers a Blueprint for America
Weight-Loss Drug Boom Tests the Limits of Prescription Advertising Rules
Trump Keeps Hegseth at Pentagon While Leaving Door Open for DeSantis
UK Clears Paramount’s Warner Bros. Discovery Deal, but US Trial Looms
UK Prosecutors Add 38 Charges Against Andrew and Tristan Tate
Taiwan’s President Joins Wartime Command Drill as China Pressure Grows
Saudi Arabia, Turkey and Pakistan Sign Mutual-Defence Pact
Government Orders Review of Prison Release Rules After Concerns Over Grooming Gang Offenders
Rail Disruption Continues Across North-West England Amid Infrastructure Problems and Engineering Closures
UK Tax Authority Proposes Broad Changes to Rules Governing Company Distributions
UK Government Moves to Protect Standing Areas Outside Pubs From Local Restrictions
Extreme Right-Wing Referrals Under UK Prevent Programme Rise 42 Percent
EU Citizens in UK Warned That Some Residency Rights May Have Been Granted in Error
Every Monitored Body of Water in England Fails Chemical Purity Standards, Government Data Shows
UK Scientists Create First Artificial Intelligence-Designed Viruses
England Orders Primary Schools to Identify Children at Risk of Becoming Disengaged From Education or Work
Government Moves to Close Prison Release Loophole Amid Concern Over Grooming Gang Offenders
UK Economy Shows Modest Growth Despite Energy Volatility and Global Supply Pressures
Police and Prosecutors Failed to Stop Sex Offender Who Later Murdered Two Women, Review Finds
Millions in England Face Longer Mental Health Waiting Times as NHS Providers Cut Spending
Met Office Warns of Heatwave as Temperatures Across England and Wales Could Reach 36 Degrees Celsius
HMRC’s 2029 Tax Shift Could Overlap Old and New Self-Assessment Bills
Thetford Disorder Prompts Expanded Police Powers Amid Asylum-Housing Protests
Cambridge Faces Calls for Independent Review of Jason Arday Appointment
Scotland’s ‘Cock of the North’ Woodland Is Being Felled After Wind Damage
Reform UK and Greens Unite Against Vast Solar Plans for Kent Marshland
New Zealand Draws Wealthy Americans With Revamped Investor Visa
Senate Panel Votes to Hold Anthony Fauci in Contempt After Fifth Amendment Testimony
Cambridge Professor Jason Arday Resigns as University Opens Inquiry Into His Credentials
Manchester Power Failure Disrupts Trains Across North West Into Friday
UK Fashion and Tourism Sectors Prepare for Strong Summer and Autumn Activity
London Residents Seek Appeal Against Approval for Chinese Super-Embassy Development
UK Environment Officials Issue Biosecurity Alert Over Rising Bluetongue Cases in Livestock
UK Charity Regulator Opens Investigations Into Donations Linked to Israeli Settlements
Gatwick Expansion and Chinese Embassy Plans Highlight Growing UK Infrastructure Disputes
UK Agriculture Authorities Warn of Rising Bluetongue Virus Cases Among Sheep Farms
×