The latest labour market data suggests the real problem facing the labour market is stagnant wages.
There are possible policy responses to the factors leading to a squeeze on living standards in early 2022 - falling wages, inflation, increasing taxes, increasing energy costs.
It is possible that the combination of Conservative MPs opposed to any tax rises, and a Labour Party that thinks NI rises are unfair, could together cause the NI rise to be delayed. But top of the Government’s New Year resolutions should be addressing the increase in the energy price cap.
Of course, the longer-term ways to insulate ourselves better from volatile commodity markets are to accelerate the rollout of renewable energy, crack on with long-overdue reform of the power system architecture to accommodate more variable generation sources at low cost, and to insulate the nation’s homes. But households feeling the squeeze today will be looking for more immediate action.
The Government does not have straightforward policy options to mitigate this huge price rise, the causes of which largely lie outside its control. But it can provide some relief via the tax or benefit system or, more directly, limit the increase in bills on a temporary basis.
The ideal policy would be direct support for lower income households. But given that would involve increasing the basic rate of Universal Credit soon after the £20/week uplift has been scrapped, this is unlikely to happen. The Government could also fund an increase in, and wider eligibility of, the Warm Homes Discount Scheme that reduces bills for vulnerable customers.