Cost-of-living crisis: Former UK chancellors say Jeremy Hunt needs to allow living standards crunch to drive down inflation

A living standards crunch is needed to bring down inflation and avoid prolonging the economic crisis, two former Tory chancellors have said

Norman Lamont and Philip Hammond both endorsed the strategy adopted by Jeremy Hunt of avoiding giveaways that would ease the impact of the increase in living costs.

However, they warned there was little more the UK Government could do to speed up the pace of progress, with inflation falling more slowly than hoped.

Lord Lamont, who as chancellor in the early 1990s under John Major had to repeatedly hike interest rates to curb inflation and protect the value of the pound, said: “I am fully supportive of the strategy adopted by the Government.

Chancellor of the Exchequer Jeremy Hunt. Picture: Jordan Pettitt/PA Wire

“There is no point whatsoever in allowing the Bank of England to put up interest rates, as it has to do, and then the Government attempting to mitigate the impact of those interest rates. There is no real alter­native to putting up interest rates, the ­sensible thing to do is to rely on the tried and tested method of combating inflation.”

He warned the Government would have to prepare voters for lower living standards in the short term thanks to the impact of higher interest rates, which slow economic growth and reduce the spending power of mortgage borrowers.

The Tory peer said: “A fall in living standards is inevitable; it is happening in other countries and the answer is to get inflation down. Nobody wants a recession, but some slowdown – hopefully not a recession – is necessary.”

Lord Lamont said supply-side reforms, designed to boost the labour market by making it easier for ­people who are not working to take up jobs, would take time to have any impact.

Lord Hammond, who was chancellor under Theresa May from 2016 to 2019, said: “I’m not sure there is anything much more he [Mr Hunt] can or should be doing. The Government cannot guarantee a pain-free exit from every problem.”

All other former chancellors were approached for comment.

Mr Hunt and Prime Minister Rishi Sunak have ruled out the idea of providing targeted support to those worst hit by interest rate rises, despite demands from some Conservative MPs and the Liberal Democrats.

They insist there is no realistic option other than to keep a tight fiscal policy, with no additional public borrowing, and wait for rate hikes to take effect. Increases in interest rates are intended to remove demand from the economy by ensuring individuals have less spending power, which limits the ability of companies to raise their prices.

Mr Sunak admitted this week it is more difficult than in the past to gauge the effect of interest rate increases because a large majority of mortgage holders are on a fixed rate, which means they do not personally feel the impact until their term expires and they have to negotiate a new deal.

A No 10 spokesman said: "It is true that inflation is the thing that will harm people's living standards, both in the short and long term if we do not get it under control. It is right that we prioritise this working in lockstep with the Bank of England."

Bank chiefs meanwhile met with Financial Conduct Authority (FCA) officials yesterday to discuss concerns surrounding interest rates for savers lagging behind the cost of mortgages.

According to data from Moneyfactscompare.co.uk, the average easy access savings rate on offer yesterday was 2.49 per cent.

Average two and five-year fixed-rate mortgage rates recently broke through the 6 per cent mark for the first time this year.

The financial watchdog has said it held a “constructive meeting”. In a statement, the FCA said: “We have challenged firms where their decision making has been slow.”