The government should consider postponing the rise in national insurance contributions planned for April to avoid a 30 per cent increase in destitution, a think tank has said.
The tax increase plus inflation, which is set to top 7 per cent in the spring, would lead to a big rise in the number of people in extreme poverty, the National Institute of Economic and Social Research said.
The poorest households spend a greater proportion of their income on household utilities such as energy bills, which are set to rise by about 50 per cent in April. The institute said that the impact of inflation on the poor would result in regional variations in destitution, with Northern Ireland projected to record more than twice the average increase.
To mitigate the effect, local authorities should administer a winter grant scheme to help poorer households to pay for energy and food, paid for by an extra £3 billion from government, it said.
The institute held to its forecast that GDP will rise by 4.8 per cent in 2022, but revised up its forecast for inflation, expecting it to peak at 7 per cent in the second quarter.
Its researchers criticised the government’s decision to tighten fiscal policy, “leaving monetary policy lagging the inflation cycle”. Paul Mortimer-Lee, deputy director for macroeconomics at the institute, said: “There is a clear danger of overdoing policy tightening and provoking a recession.” He warned that it would take only one shock to tip the economy into recession territory.
“Fiscal policy support should be extended for the sectors, regions and families most affected by the slowdown.”