The chairman of NatWest Bank has argued that changes to the benefits system would be the most effective way for the government to help poor families struggling to cope with the crisis of life, rather than reduce taxes that would encourage the rich financially.
Sir Howard Davis, a former deputy governor of the Bank of England, says rising energy bills and massive inflation are having an disproportionate impact on the poorest fifth family and should be the focus of their financial aid.
“The pressure on quality of life as a result of high electricity prices and high food prices is really tremendous,” he said. “If you look at what people have to do at their discretionary costs to offset these increases. The bottom 20% of the population needs to reduce their discretionary costs by 20% to stay financially. “
Davis said it is difficult to compare the scale of the cost of living crisis in the historical context because cowardly lockdowns put a brake on huge household spending, which meant £ 280bn more was saved than the pre-epidemic and provided a “liquidity cushion”.
He said those who have savings have been able to continue their way of life – pointing to the holiday market boom – and that a tax cut across the board would be a “stupid device and very expensive” and would benefit those who don’t.
“What do I think? [the government] He told BBC Radio 4’s Today program that it was important to look at the nature of the problem and where the worst elements of stress were.
“The problem is the bottom line is that most of those people have no savings and therefore no cushions to dive into. I will focus on the bottom 20% and see what can be done to help them through the benefit system. Tax cuts are similarly hard to notice. “
Davis was cautious when executives at Tesco and John Lewis called for a windfall tax on the growing profits of big power companies, and Boris Johnson refused to repeal it on Thursday.
“If you can define very clearly what you mean by a cyclone, so that people will see it as a real one-off that is not part of the long-term tax burden on companies’ sets, then the arguments for it begin. Stack up, ”he said. “Some past experience has increased the cost of capital for the company because people simply say, ‘Well, we can’t be sure that our profits will not be taxed in the future.’ If you can truly differentiate the situation and why these benefits are made at this particular time, then you have got a decent argument. I don’t know how to make that argument right now. “
Davis, who was in favor of raising interest rates last summer, said it was “unfortunate” that the Bank of England had not moved forward to try to put a brake on inflation, which is predicted to reach a 40-year high by the end. Years.
“The record of history shows that if you do not get ahead in the game, you will have to do more later,” he said, adding that he believes interest rates will continue to rise. “There will be some anti-inflation work for them. Ultimately, higher electricity prices will reduce other costs. “