Energy bills, food prices and Universal Credit: How making ends meet is about to become harder

It’s been described as a “perfect storm” and it's certainly true that a huge number of big problems are coming together at the same time. 

The UK Government is being criticised for pushing ahead with changes including cuts to support and the furlough scheme at a time when so many other challenges are becoming clear. 

But ministers in London say now is the right time to switch focus from protecting employers and employees, to supporting them to find work, learn new skills and create jobs. 

The Chancellor says that “in no way” do the changes mean “the end of the UK Government’s support in Wales” and that billions of pounds will continue to be spent on direct support and indirectly through the Welsh Government. 

Energy Bills

Energy prices which have been increasing recently will almost certainly go up again. From today (1st October) the cap imposed by the regulator will rise and could see an extra £139 a year on the average bill. 

The price cap is a limit on how much suppliers can charge in a given year in order to protect customers from paying too much. From today it will be set at £1,277. 

The regulator, Ofgem, says the increase is driven by a rise of over 50% in energy costs over the last six months with gas prices in particular “hitting a record high”

Furlough

The furlough scheme also ends today (1st October) First introduced in March 2020 as a way of protecting the jobs of those who would otherwise have become unemployed as a result of lockdown closures of businesses, it was extended several times over the course of the pandemic. 

According to the UK Government it has protected over 473,000 jobs here in Wales.  UK-wide, the figure is 11.6 million.

It will affect a lot of employees and employers here in Wales where 69,300 were still on furlough at the end of June. It’s thought as many as 54,700 were still reliant on it at the end of July.

VAT increase

The prices you pay in pubs and restaurants could also be about to go up because from today those running hospitality businesses will see VAT increase.

The tax rate was cut to 5% in July 2020 as part of the measures to help hospitality firms weather the pandemic. From today it goes up to 12.5% and by April 2022 will be back at its pre-covid level of 20%.

Owners of pubs and restaurants say they’ll have no choice but to put prices up for customers. 

Universal Credit

As one of the responses to the pandemic, a temporary increase of £20 was added to universal credit payments but that comes to an end on 6th October.

Actually many people will be getting or have had their last payment at the higher rate.

There have been a lot of opposition to ending this particular scheme, including from Conservative MPs, chief among them the former Welsh Secretary Stephen Crabb who has warned that it could lead to an increase in poverty among those who are working.

Although it is a benefit, universal credit is designed to encourage work so many who claim it are already in jobs. 

The change is likely to affect a lot of people. As of 12th August there were 279,018 people here in Wales receiving Universal Credit.

National Insurance 

Many of us will notice less in our payslips too. National Insurance is the tax that everyone who’s in work and their employers pay to fund health and social care and the benefits system. 

It will be going up in April 2022 to raise £12bn for the UK Government’s health and social care plans. At that time the amount you’ll pay if you’re in work will increase by 1.25p in the pound. In 2023 it’ll go down again but will be replaced by a new tax, the heath and social care levy. 

Food prices

Well-documented problems in the supply chain, including a shortage of lorry drivers, is driving up the cost of food. Retailers are warning that prices could go up by 5% in the coming months. 

What the UK Government is doing

There are two governments with responsibility for the economy in Wales: the Welsh Government and the UK Government. 

The UK Government says it has given ministers in Cardiff an extra £8.6bn in funding since the start of the pandemic. 

However, while the Welsh Government is using that funding for its own schemes and support, dealing with these big UK-wide problems is primarily the responsibility of the UK Government. 

Today it has announced that it will make grants available to struggling households, earmarking £500m for them. £25m of that will go to the Welsh Government which has yet to decide how to distribute the money.  

A Welsh Government spokesperson said: “Tackling poverty is a priority for the Welsh Government and our Programme for Government sets out our commitment to improve outcomes for low income households.“We have already provided significant financial support packages, including our £25.4m Discretionary Assistance Fund, which has received an extra £10.5m in this year.  

"In addition the Local Government Hardship Fund has provided more than £688m to local authorities over the last 18 months to deliver services to people across Wales, including wide ranging practical support and advice through the Protect programme.“We will consider how best to distribute this new funding to support vulnerable households in Wales.”The UK Government says its focus is now moving to a new phase, creating rather than protecting jobs with a £400bn support package in place for its “Plan for Jobs.”

It says more employees are on payrolls than before the pandemic and that the UK is predicted to see the fastest growth in G7 counties over the next two years.

But it says that the Plan for Jobs will continue supporting employers.

The Chancellor of the Exchequer, Rishi Sunak said that he was  “immensely proud of the furlough scheme, and even more proud of the determination and resilience of Welsh workers and businesses through the pandemic

“.With the recovery well underway, and more than 1 million UK job vacancies posted, now is the right time for the scheme to draw to a close. 

“But that in no way means the end of the UK Government’s support in Wales. Our Plan for Jobs is helping people into work and making sure they have the skills needed for the jobs of the future.”  

That was echoed by the UK Government’s Welsh Secretary, Simon Hart who praised UK Government actions during the pandemic and its plans for the coming months. 

“During the past 18 months we have tackled the pandemic as one United Kingdom, providing vaccines, Covid testing and Armed Forces support in Wales as well as our ground-breaking financial measures. 

“We will continue to do everything we can to build back from the pandemic, creating jobs and growing a strong economy in Wales and across the UK.” 

The Welsh Government has been sceptical. Speaking in First Minister’s Questions this week, Mark Drakeford acknowledged that the UK Government has “acted on a considerable scale to help protect the economy from the impact of coronavirus.”

But he said that it should not be making such drastic changes now. 

“I am fearful of the end of the furlough scheme … I think, in all the circumstances, it is premature to have pulled away in a wholesale fashion from all the help that different businesses and the self-employed have had from those schemes. 

“We would have preferred, and have advocated to the UK Government, a more targeted approach, in which those sectors that still are furthest away from being able to operate on a non-COVID basis would continue to get help into the future. 

“I think time will tell… whether or not the relatively swift recovery of the Welsh economy will be sustained beyond Thursday and the end of that scheme.”

Meanwhile Plaid Cymru says the decision to end furlough is simply "wrong" and "misses an opportunity" to create more flexible support schemes. 

The party's Treasury spokesperson, Ben Lake MP said the UK Government is making a difficult situation worse. 

“Along with the cut to Universal Credit, soaring energy bills, food and fuel shortages, and a National Insurance hike around the corner – Westminster is inflicting a perfect storm of catastrophes.“Plaid Cymru are urging the Chancellor and Prime Minister to do the right thing today and commit to a last-minute U-turn on furlough and Universal Credit. I fear that without a safety net this winter, we could see thousands of avoidable redundancies across Wales.”