Government has ‘lost the plot’ on the cost of living, top economist warns

The government may have "lost the plot" on the cost-of-living crisis, a senior economist has said.

Rising costs for food, fuel, and other essentials combined with soaring energy bills and tax hikes are leaving millions of Brits feeling the pinch as the cost of living rises.

Experts have warned British households are facing the steepest drop in living standards since records began, putting pressure on Boris Johnson and Rishi Sunak to announce more help.

On Monday night, Number 10 said the prime minister would order ministers to produce new, "innovative" strategies that don't rely on more money to ease the squeeze.

Read more: Cost of living: UK households face ‘major recession’ as crisis escalates

According to the BBC, ideas touted at the meeting on Tuesday included: changing MOTs from annually to once every two years; and long-term reforms to childcare costs.

However, the strategies were swiftly condemned by a leading economist in the field.

"If the ‘answers’ being proposed to a massive and immediate energy driven cost of living crisis are long term regulatory reforms of childcare and MOTs then we have lost the plot," Torsten Bell, chief executive at the Resolution Foundation, tweeted on Tuesday.

Bell also pointed out that wealthier households are more likely to use childcare and own cars.

He added: "[The] impact would be years off and, while it’s poor households being crucified by rising energy bills, it’s richer households that are most likely to use formal childcare...

"Our problem is a big cost rise for almost everyone that is harder for low/middle income households to bear.

"So the answer is either reducing that cost rise for, or raising the income of, those households. The benefits system is by far the easiest way to do that. Obviously."

Watch: Almost nine out of 10 adults say they have seen a rise in cost of living, ONS figures show

Read more: Cost of living crisis: The everyday food items that are soaring in price

The Resolution Foundation has repeatedly called on the government to increase benefits in line with inflation, which is currently at 7%.

The failure to up-rate benefits in line with current inflation is tantamount to an £11bn real terms cut to benefits.

Other experts, including the director of the Institute for Fiscal Studies (IFS), Paul Johnson, have also joined the calls.

But the Treasury has ruled it out, with the chancellor staunchly defending his current measures including:

• 5p off fuel duty

• Continuing with hikes to National Insurance contributions but increasing the threshold at which it is paid by £3,000

• An additional £500m for the Household Support Fund

• A £150 council tax rebate for bands A-D, as well as a £200 repayable discount on energy bills

The chancellor also pledged to knock 1p off income tax in 2024, the year of the next general election.

Read more: Cost of living crisis is 'humiliating' working people, poverty charity says

Asked what ideas had emerged at Tuesday's meeting, the Johnson's spokesman said: "The prime minister will chair a domestic and economic strategy committee in the coming weeks to finalise the proposals before they are brought into force."

Ministers talked through "a number of ideas" during the Cabinet meeting, No 10 said, and they will "feed into a more formal process".

"It will meet in the next couple of weeks, I don’t have an exact time frame for you," the spokesperson said when asked about the timing.

On Tuesday, Labour leader Sir Keir Starmer said his party is calling for "an emergency budget".

"The cost-of-living crisis has been staring us in the face for six months now and it’s a real problem for people struggling with their bills and the Cabinet meeting this morning isn’t going to change any of that," he said.

He accused the government of doing "very little in relation to energy bills", and that they had "made a bad situation worse by choosing to put taxes up".