Sunak’s £15bn spending spree will help UK avoid Japan’s fate
Iwas pleased to see the Government responding to the cost of living crisis. This is a crisis that has threatened a dramatic fall in living standards for people on fixed and low incomes, including pensioners reliant on savings.
No one under 40 has ever seen double digit inflation. No business leader today has had to navigate inflation at this level. The last time inflation was this high I had just started at the Treasury as a junior economist.
Prior to the Chancellor’s statement this week, I had argued that the Government needed to respond to the cost of living crisis with the same ambition it had approached the pandemic – at scale and at pace. Given the urgency and seriousness of the situation, a windfall tax on energy companies – while not perfect – is a reasonable and valid measure to help pay for the support needed.
Last week’s £15bn package is therefore to be welcomed. It puts money in the hands of those who need it most – those who would find it hardest to pay rising energy and food costs, especially in the light of Ofgem’s estimate that energy bills are due to rise by another £800 in October.
Together, April and October’s expected energy price cap rises would amount to the equivalent of 10p on the basic rate of tax for someone on an average wage.
According to the Resolution Foundation, the average gains from last week’s announcement are £823 across the poorest fifth of households, compared with £500 for the middle fifth of households and £296 across the most well-off.
The income boost will help many people working in retail, including the 78,000 partners who work for John Lewis and Waitrose (we call ourselves partners because we own the business and have no external shareholders).
As a business we have doubled the money we make available to partners who find themselves financially vulnerable. Since April, we have been paying the real voluntary living wage to our partners in the UK. We have a long-term partnership with the food poverty charity Fareshare.
Since 2017, we have donated 10m meals to people in need. We also offer surplus food free of charge to our partners. Every Waitrose store takes customer donations for local food banks, mainly through our partnership with the Trussell Trust. We donated £1m through our shops to charities and organisations to help children experiencing poverty during the school holidays in 2021. We will do so again this year to help make sure they have a healthier summer.
The Government’s package will also help our customers, who are not immune from the cost of living crisis. We have already seen a drop in spending on groceries in the UK with food sales down 1.8pc in the three months to April – before the energy price rise kicked in – and people are spending less on big items like furniture, electrical and other homewares.
As a partnership we – like other businesses – are facing intense cost pressures from higher energy, commodity and freight bills and we are working hard to protect our customers from price rises. But they cannot be avoided altogether.
After the financial crisis of 2008, we saw a flight to trusted brands like our own. We are making available more of the quality products our customers expect at prices they may not.
Essential Waitrose is the biggest value range of any supermarket and doesn’t compromise on quality. All our pork, including essential Waitrose sausages and bacon, is British and comes from animals reared to industryleading standards. We are doing all we can to stand by our farmers at this challenging time too. We recently announced a £16m financial support package for our pork farmers to help them through the crisis.
Our Anyday range in John Lewis is proving a hit with customers who want to mix and match clothes and home furnishings at the lower end of the price scale.
But there is no denying that after two years of Covid, these unprecedented inflationary headwinds will make for a difficult year for retail and business generally.
There has been a lot of debate since Thursday as to whether the package – most of which will be paid for by higher borrowing alongside the windfall tax – will itself fuel inflation. For my money, I think the risk is low.
What the package does is help to tackle what to my mind is the really big risk for the economy and our collective prosperity – low or no growth. This is the situation that dogged Japan for years. Recent indicators of consumer confidence and of business investment intentions have shown both weakening rapidly.
By putting more money into the hands of those who need it most, the Government is also helping to give a much-needed boost to confidence that should support consumer spending and business investment.
The cost of living crisis is unprecedented and demands unprecedented action.