Cost of Living: Bank of England Blame VAT Bombshell

(August 13, 2013)

LIVING STANDARDS - slowest recovery

David Cameron & his Chancellor are out of touch... 

David Cameron has often tried to claim his Government is helping people with the cost of living crisis they and their families face. In January 2012 he said they had “helped where we can with the cost of living”.

In fact, he even had the audacity to go onto Radio 4’s Today programme and explained, “We helped where we can with the cost of living.”

At the start of 2012 then Treasury Minister Chloe Smith claimed that “the cost of living is coming down a little for families” despite the fact the fall in the inflation rate simply meant the cost of living was going up at a slower rate. 

“Well I think this is on the whole quite good news. It does show that the cost of living is coming down a little for families.” Chloe Smith, BBC News Channel, 17 January 2012

The following month David Cameron was boasting about how inflation was coming down by saying, "Well inflation is coming down and that is good news because the cost of living is the most important issue to families up and down the country."

For once he wasn’t wrong. The cost of living is really important to families. But he is totally wrong if he thinks he has made the problem better, not worse.

While the rate of inflation was coming down in early 2012, that was because the impact of the Government’s VAT rise (remember the one they told you before 2010 they wouldn’t introduce!) the year before was no longer being measured in the statistics. 

Despite David Cameron’s complacent claims inflation rose again towards the end of 2012, and has stayed a little below 3% for the last year, rising to 2.9% last month. It has been consistently above the Bank of England’s target of 2% since David Cameron has been Prime Minister according to the Office of National Statistics.

As the Bank of England has previously highlighted, the decision by David Cameron’s Government to increase VAT to 20% pushed up inflation. The BoE report in August 2011 which deals specifically with inflation explained, “CPI inflation was 4.2% in June. The strength of inflation continued to reflect the effects of past increases in both the standard rate of VAT to 20% and the prices of energy and other imported goods and services.”

In 2011, the year in which David Cameron said he had helped wherever he could with the cost of living, 70% of people in Walton saw their real wages fall as their pay packets failed to keep up with inflation. This is the first time since the 1970s that such a high proportion of workers saw their real wages fall.

Labour analysis of figures published by the independent Institute for Fiscal Studies has shown that families in Liverpool are an average of £891 worse off this year because of tax rises and cuts to tax credits and benefits introduced since 2010. 

Things are getting worse not better and Cameron and Clegg must change course quickly.

 LIVING STANDARDS - hardworking people worse off

Click here to return to the News page