The cost of living crisis is a key issue for the Conservative leadership candidates hoping to become the next prime minister of the UK. But the taxation strategies suggested by the final two Conservative party leadership hopefuls, Rishi Sunak and Liz Truss, won’t solve this problem.
Instead, we need a more nuanced approach that will support all UK households, but particularly those in more deprived areas who have been hit hardest by rising bills and slowing economic growth. Understanding how and why inflation has affected these households is an important step in assessing the solutions the candidates have put forward.
UK inflation rate
One of the main contributors to the UK’s current economic situation is that the high rate of inflation – 9.4% as of June 2022 – has outstripped wage and benefit increases. Although UK unemployment held at 3.8% from March to May 2022, real disposable incomes (pay adjusted for inflation and after taxes and benefits) fell by a record 2.8% during the same period.
This means work is becoming less effective at warding off poverty, particularly in areas of the UK where incomes and investment are lower; where infrastructure needs updating and where overall economic prospects are more bleak than for the rest of the country. The situation has been further intensified by tax increases, with 2021 seeing the largest rise in taxes (as a share of national income) of any year since 1993.
The last-remaining Tories vying to become Conservative party leader and prime minister will engage in a head-to-head debate in Stoke-on-Trent on July 25. As an economist working on poverty reduction and living in Stoke-on-Trent – one of the most deprived parts of the UK – I see the effects of the cost of living crisis every day. The tax strategies put forward by Sunak and Truss will have major implications for the areas of the UK most affected by the rising cost of living.
Liz Truss
The foreign secretary’s tax strategy indicates she sees UK inflation as “cost-pushed”, which means there is a reduced supply of goods and services. With this kind of inflation, prices are pushed up by rising costs of production and raw materials.
