Mr. Sebastian Barnes:

These are generally very difficult questions for anyone to answer with regard to what policy should be. I will, however, make a couple of points in response.

A difficult judgment is being faced between temporary and permanent measures. We do not know how long these price shocks will last. We are aware that energy prices and food prices can be very volatile. They may well go up and make the next winter very difficult in Europe. On the other hand, they could also go down if things work out better than expected. The Government must think about the balance between temporary measures where we make these once-off payments or time-limited payments, which is mostly what the Government has done, versus these permanent increases in welfare payments that would, essentially, be required to keep their real value over time but would need to reflect the fact that prices may fall. This is the temporary versus permanent split the Government must think about.

The second point is the exact amounts. It is a very difficult question. Again, it depends on which instruments the Government wants to use, what combination it wants to use, and to what extent it wants to target. The important part about targeting is that even just raising welfare rates in line with general inflation probably would not fully compensate the lower income groups who are spending a much higher share of their income and facing a much faster rate of increase than the general population. That is an important point to bear in mind. Ultimately, I believe the Government needs to co-ordinate across policies. IFAC has also suggested co-ordination with the social partners on how the whole package will look.

The Deputy asked about the amount of fiscal space. We believe that the Government's spending rule is actually providing useful guidance. It is forcing the point that there is a choice between how much is ultimately spent on the permanent increases in welfare payments and other things. We are not taking any view on how that choice should be made. That is a democratic choice but it is forcing the right kinds of questions to be asked.

One very helpful aspect is that the Government seems to be interpreting the rule in terms of the level of spending. In 2021 there was a big underspend. If the Government was to lock in that underspend it would create more space to tackle the cost-of-living crisis. That is one of the very live questions the Government faces. It probably would not make a lot of sense to try to catch up on that underspend very quickly and then realise there is not enough money to deal with the cost of living. This is one of the things that gives the Government a bit of marginal manoeuvre.