Reeves says ministers ‘gaslighting’ over inflation ahead of expected fall in CPI

High inflation has cost workers almost the equivalent of a 1p hike in tax, according to Labour analysis.

The research found that the average earner was £180 worse off than they would have been had wages kept pace with inflation since October 2021.

Labour produced the analysis ahead of the latest release of official data which is expected to show the Consumer Prices Index (CPI) inflation for April falling to within touching distance of the Bank of England’s 2% target.

Pay growth v inflation
(PA Graphics)

Shadow chancellor Rachel Reeves claimed that would result in ministers “gaslighting the British people by telling them they never had it so good”.

But Labour’s analysis suggests a higher rate taxpayer earning £55,000 in October 2021 is £343 worse off because of higher prices, while if earnings had kept pace with inflation a 1p tax hike would have cost £377.

For average earners real wages have dropped £180 since October 2021.

If they had risen in line with inflation, an extra penny on income tax or national insurance would have cost £207.

CPI inflation rose by 3.2% in the 12 months to March 2024, down from 3.4% in February, according to Office for National Statistics (ONS) data.

The figure for April will be released on Wednesday and is expected to show a further decline in the rate at which prices are rising.

Any decline is likely to be seized on by Chancellor Jeremy Hunt and Prime Minister Rishi Sunak.

The surge in inflation, which reached 11.1% in October 2022, has been influenced by factors including the emergence of global economies from the Covid-19 pandemic and then the energy price shock caused by the war in Ukraine.

Ms Reeves said: “Last week, Keir Starmer and I unveiled our first steps to turn the page on a decade of economic decline.

“We will make families better off by delivering economic stability with tough spending rules, so we can grow our economy and keep taxes, inflation and mortgages as low as possible.

“However, all Rishi Sunak and Jeremy Hunt can offer is more of the same.

“More chaos, more decline and more unfunded tax cuts.

“And this week we can once again expect to see Conservative ministers gaslighting the British people by telling them they have never had it so good, while leaving them hundreds of pounds worse off.

“It’s time for change. It’s time for Rishi Sunak to get out of his bunker and call a general election.”

With the economy and public finances one of the key election battlegrounds, the Tories have warned that Labour’s spending plans would require tax rises.

Treasury Chief Secretary Laura Trott said: “While Labour want to raise your taxes, Rishi Sunak and the Conservatives are sticking with the plan which is working.

“Inflation is down from its peak of 11.1% to 3.2%, the economy is growing, wages are rising for the tenth month in a row, and we are cutting the double tax on work worth £900 for the average worker to put more money in people’s pockets.”