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Calls for government to give cash payments to struggling households

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Written by: Emma Lunn
20/01/2022
A think tank says chancellor Rishi Sunak should give a £300 cash ‘cost of living’ bonus to people feeling the financial squeeze.

The Social Market Foundation says the Treasury should reject over-complicated solutions to the fact millions are struggling due to rising prices and simply make one-off cash payments to millions of households.

Dr Aveek Bhattacharya, chief economist of the Social Market Foundation, says cash payments of up to £500 would be the best answer to the cost of living crisis, allowing households to decide for themselves how to spend the money.

Households where no-one is a higher-rate taxpayer should get a cheque for £300, with an additional £200 for those on Universal Credit or legacy benefits, Bhattacharya suggested.

In a Social Market Foundation blog, Bhattacharya said that the other proposals being discussed as answers to the crisis are flawed. Cutting VAT on fuel, expanding the Warm Home Discount and supporting energy companies directly would all make energy cheaper and encourage consumption, he warned.

Instead, in a proposal modelled on the US stimulus payments during the pandemic, Bhattacharya suggests a simpler system of cash payments.

The proposal follows calls from the Joseph Rowntree Foundation for an immediate emergency payment for people on the lowest incomes to help them through the coming months.

Bhattacharya suggested the UK could follow the example set by the US in establishing and testing the infrastructure to make such payments, so the UK government could respond rapidly to future economic shocks.

He also suggested that by staggering the payments over a few months any contribution to rising inflation could be minimised, and potentially avoided.

An emergency cash payment would also have the benefit of being a clear one-off intervention, whereas other proposals would risk committing the government to costly ongoing subsidies, that it would find politically difficult to end.

Dr Aveek Bhattacharya, chief economist at the Social Market Foundation, said: “The coming cost of living crisis leaves millions of households facing severe hardship, and many millions more feeling significant pressure on their finances. It is clear that some action is needed, but the government should avoid the temptation to over-complicate its response and muddle its environmental objectives by subsidising energy.

“Instead, it should make direct cash payments to households and leave them to figure out how best to address their needs. A ‘cost of living bonus’, with a higher payment for those on low incomes, would do a lot to help struggling families and clearly demonstrate that the government is on their side.”

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