THE UK Government is being urged by the devolved governments to fund its cap on energy prices through a windfall tax, not higher borrowing.
In a joint letter to the new Chancellor of the Exchequer Kwasi Kwarteng, Deputy First Minister John Swinney is joined by Finance Ministers from Wales and Northern Ireland in calling for more targeted support to those impacted the most by the cost of living crisis.
They express their concern that more action is needed to prevent further hardship for households and businesses and say support “should be funded by targeting the windfall gains in the energy sector rather than passing on the cost through higher borrowing”.
The Finance Ministers also call for additional funding to support vital public services in the face of rising prices, energy costs and wage pressures as devolved settlements are worth considerably less in real terms than last October when they were set.
The joint letter reads:
Dear Kwasi,
We want to jointly congratulate you on your new role as Chancellor of the Exchequer. We are committed to working constructively with you and the new UK Government. A productive working relationship will be essential to tackle the economic crisis facing our citizens, communities and businesses.
We wrote to your predecessor on 15 July outlining our considerable concerns with the worsening economic situation in the UK including the cost crisis, funding for public sector pay and the impact of inflation on the Devolved Governments’ budgets. Our letter has been included as an annex here.
The Prime Minister’s announcement of 8 September limiting increases in energy bills will alleviate some of the anticipated additional pressures on households and businesses. However, it is important to recognise that overall this is an expensive package of measures that does not target support to those who need it most. We are deeply concerned at who will bear the brunt of these costs. Support should be funded by targeting the windfall gains in the energy sector rather than passing the cost to households through higher borrowing.
Looking ahead to your forthcoming fiscal statement, we urge you to focus efforts on those most impacted, not just relying on blanket interventions which do not recognise the scale of hardship particular households are facing. An extended and targeted support package needs to be provided to help those who, even with the cap, are facing the impossible choice between heating their homes and feeding themselves and their loved ones. Even with the price cap, energy costs are still double what they were last year.
In addition to households, early clarity and additional support is also required for businesses and the third sector, who are facing substantial challenges. The current measures provide businesses with only a temporary respite and little certainty to help them plan for the future. Many organisations would be forced to close if they are not supported.
Ministers in the Devolved Governments have exhausted the options available to us to address the cost crisis, stretching every pound available to us to provide support. The main levers that can make a difference are held by the UK Government and it must now take urgent steps to use these to provide much needed certainty to those suffering hardship and poverty.
The crisis has also resulted in a major squeeze on funding for public services and increases in demand. Additional funding is urgently needed to support our vital public services in the face of rising prices, energy costs and wage pressures, alongside unforeseen pressures. Based on recent inflation and widespread inflationary expectations for the next year or two, our respective three-year spending review settlements are worth considerably, potentially billions, less in real terms than when we received them last October.
Further, Russia’s unprovoked invasion of Ukraine has resulted in many Ukrainians seeking safety across the UK, however it is necessary to increase the funding available to support them here. In particular, there is a lack of parity in the funding available for those arriving under the Ukraine Family Scheme and the Ukraine Sponsorship Scheme, which cannot be right. ‘Thank You Payments’ to host families should also, in line with Lord Harrington’s recommendation, be doubled to ensure that those who have opened their homes to Ukrainians do not lose out financially as a result.
We would welcome early engagement and clarity on planned fiscal events to enable us to set out the implications for the devolved nations and effectively plan our own budgets, which are significantly impacted by UK spending and tax decisions.
Collaborative working between the UK Government and the Devolved Governments in a spirit of mutual respect would be of benefit to all of us.
Given that, now overdue, action is required to tackle the crisis we propose a quadrilateral meeting with the Chief Secretary to the Treasury as soon as possible and in advance of the FISC to agree the immediate steps that must be taken to tackle this issue and support households, businesses and the public sector.
This letter has been copied to the Chief Secretary to the Treasury and the Secretaries of State for Scotland, Wales and Northern Ireland.
Yours sincerely,
John Swinney BPA/MSP
An Leas-phrìomh Mhinistear agus Ath-shlànachadh Cobhid, Riaghaltas na h-Alba
Deputy First Minister and Cabinet Secretary for Covid Recovery, Scottish Government
Rebecca Evans AS/MS
Y Gweinidog Cyllid a Llywodraeth Leol, Llywodraeth Cymru
Minister for Finance and Local Government, Welsh Government
Conor Murphy MLA
Minister of Finance, Northern Ireland Executive
Background
On 15 July 2022, the Finance Ministers for the devolved governments wrote to the then Chancellor outlining economic areas of concern, including the cost of living, public sector pay and wider spending pressures.
