David Cameron has called on Rishi Sunak to “keep the cost of government down” and limit taxes as the Chancellor scrambles to offset an estimated £800 surge in the average energy bill sparked by sanctions on Russia.
The former prime minister likened the spike in energy prices caused by war in Ukraine to an increase in inflation at the beginning of his premiership in 2010, and suggested repeating the austerity approach he took at the time.
It came as the Institute for Fiscal Studies (IFS) warned that households face an £800 hit from higher energy bills this year. The blow, spurred by a jump in global gas and oil prices caused by Russia’s invasion of Ukraine, is equivalent to a more than a 5p rise in income tax for the average earner.
Asked on Wednesday night on Andrew Marr’s LBC radio programme what Mr Sunak should do to help families and businesses amid predicted inflation of around 8pc this spring, Mr Cameron defended the “difficult decisions” he took after taking office.
He said: “I faced this a bit in 2010 when inflation did rise up. What can we do to help people? That’s the question at this difficult time.
“I’m often criticised for the difficult decisions we made on the economy … but you’ve got to try and keep the cost of government down.
“Ultimately, if you can keep the cost of government down and people’s taxes down, you help them through the cost of living crisis. I think that’s important.”
Mr Cameron has generally avoided offering advice to his successors since leaving office after the Brexit referendum in 2016.
His intervention comes just 48 hours after Michael Gove, the Levelling Up Secretary, hinted that a major new spending package could be announced to counter increased energy bills later this year.
Mr Gove said that “all the evidence is that our Chancellor, whenever there has been a challenge, has risen to that challenge in order to support those most in need”. Asked if he was giving a “broad hint” about future measures, he replied: “Yes.”
The IFS said Mr Sunak’s £9bn package to shield households from soaring costs will now offset just a fifth of the total cost increase. It warned that the Chancellor would need to stump up another £12.5bn to maintain the level of protection aimed at in his intervention last month. It said “living standards will suffer across the board” unless Mr Sunak takes action.
The Chancellor delivers his spring statement on March 23.
Energy bills could jump by another 90pc in October if Europe ceases to import gas from Russia, according to estimates from Goldman Sachs.
The price cap is already rising by 54pc next month, taking the typical annual bill to £1,971. A further 90pc rise would push it up to £3,745.
Household finance confidence has suffered the biggest slump since the start of the pandemic amid warning the UK may be heading for a period of ‘stagflation’, marked by price increases and slow growth.
Polling by YouGov and the Centre for Economics and Business Research found people’s perception of their financial situation over the past month and coming year were both the lowest in a decade.
The inflationary blow will be even more acute for public sector workers, who face an average real-terms drop of £1,750 in their gross salaries if pay awards are not adjusted to reflect price increases, the IFS said.
Paul Johnson, the IFS director, said an increase in defence spending now “seems inevitable” as European countries put themselves on a war footing. He said: “[The] era where chancellors could use defence spending cuts to enable NHS spending to rise without an overall increase in the size of the state seems well and truly over.”