It’s the cost of living, stupid

The Westminster circus will be following every twist and turn of the admittedly disgraceful Peter Mandelson, Jeffrey Epstein, Morgan McSweeney and Keir Starmer nightmare blunt rotation. Many will say that this is the sort of scandal that could bring down the UK’s Labour government. But the biggest threat to any government comes from bread-and-butter economic issues, and Britain in 2026 is no exception. These days one might be labelled ‘cognitively-challenged-a-phobic’ for quoting James Carville, but what matters most is still the economy, stupid.

Another Downing Street chief of staff who left in acrimonious circumstances, Dominic Cummings, nails this on his latest Substack. It is a distillation of dozens of focus groups he has been monitoring to gauge the public mood. His conclusion: forget Epstein; the reason Labour will be sunk is that, despite talking a big game, it has completely failed to reduce the cost of living. Alongside immigration, this is the greatest failure of this government in the minds of the public.

Labour inherited inflation that had been brutally suppressed by what turned out to be the Pyrrhic efforts of former chancellor Jeremy Hunt. When Hunt entered No 11 at the end of the Truss interregnum in 2022, inflation was at a 41-year high of 11.1 per cent. By May 2024, the Consumer Price Index (CPI) hit the Bank of England’s two per cent target. Yet, by late 2025, within six months of Labour taking office, CPI had crept back up to around 3.4 per cent, driven mainly by the growing cost of services, food and drink.

Starmer and chancellor Rachel Reeves have now set about making the situation worse. Their employers’ national-insurance hike from 13.8 per cent to 15 per cent, the large minimum-wage increases, vehicle-excise-duty rises on higher-emission vehicles, and the restrictions on winter-fuel payments have all added to household and business costs. Milton Friedman called inflation a hidden tax. It hurts the poorest hardest.

Worse still, Labour is doubling down on policies that will put further pressure on prices and squeeze living standards, just when people are already feeling the pinch. Hikes in so-called sin taxes – that is, taxes on things ordinary people like, but the government disapproves of – are making life especially difficult.

The last autumn budget included another tax increase on cigarettes: an extra £2.20 per 100 fags from October 2026. This will noticeably lift the tobacco component of the CPI later next year. Alcohol duty is also increasing again, remote gaming duty is being doubled to 40 per cent from April 2026, general betting duty on online sports is heading to 25 per cent, air passenger duty is rising for non-economy flights, and the five-pence cut on fuel duty is only being extended temporarily, before being reversed in September this year.

All of this is exactly the opposite of what is needed to ease the cost-of-living crisis, or help inflation return to two per cent. Just imagine what a mini-boom there would be if, going totally against the grain, and in time for the World Cup this summer, Labour announced it would scrap all these extra rises and hikes. This would cost a fraction of what the government plans to give Mauritius as part of the Chagos surrender deal. Even I, no fan of this Labour government, would join the jubilation.

Ironically, if Starmer can just hold on for a few more months, he might see slightly better economic headlines before many of these price-raising measures fully hit. Economist Kallum Pickering has pointed this out: inflation is inching down, and the Bank of England is likely to cut interest rates in March. But, as this week’s events have demonstrated, that is one almighty ‘if’.

As Starmer enters the most dangerous period of his premiership, he should be wary. The persistent feeling of being robbed at the checkout will remind people every single day of how little he has done to help them. Ronald Reagan once described inflation as being ‘as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man’. These are words Starmer should heed – although, given Labour is also presiding over a surge in shoplifting and general lawlessness, you can see why this other violent phenomenon seems to be no big deal to those in charge.

Only constant vigilance against inflation can bring it under control. But as the debacle of Peter Mandelson’s hiring shows, vigilance isn’t exactly Keir Starmer’s forte. Brace yourselves for more pain to come.

James Price was previously chief of staff to the chancellor of the exchequer.