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24 March 2022

The Chancellor has fallen far short of addressing the cost of living crisis

Rishi Sunak promised to ensure “economic security” and to help “where we can make a difference” – and then he simply didn’t.

By David Innes

This was a Spring Statement where there should have been a single, clear priority for the Chancellor: to provide support for families at the sharp end of the wave of rising prices that is upon us. It was also a rare fiscal event where good economic news in the form of better-than-expected tax revenues gave Rishi Sunak scope to act without needing to cut back elsewhere to make up the shortfall.

And yet, he shirked his responsibility, and instead prioritised tax breaks for middle and high-income households – over preventing a real-terms cut to benefits – that will abandon many to the threat of destitution.

We are all concerned about the rising prices we’re seeing at the petrol pumps, in our energy bills and when we do the food shop. But the rising cost of living isn’t affecting us all equally. If you’re living on a low income the chances are you’re already spending nearly all of your money on essentials like energy and food. So when the prices of those essentials is going up it has a profound effect on your household budget, leaving you with few options for cutting back on your spending. The rising cost of living is already putting families in poverty in impossible situations.

This is why it was so essential that the Chancellor used yesterday’s statement to target measures towards those at the sharp end of the rising cost of living – people on the lowest incomes. But instead his policies are exacerbating the problem. The OBR’s latest forecasts now say inflation will reach 7.7 per cent in April. Yet benefits such as Universal Credit – supposed to give people security in the face of economic shocks – will be rising by just 3.1 per cent. That’s a real-terms cut in what those benefits can afford to buy, which comes on top of a decade of cuts and takes the level of out-of-work benefits to a 30-year low.

The consequences will be disastrous. We have recently been hearing of food banks appealing for hot water bottles, of people setting timers on their phone so they don’t have the heating on for more than 30 minutes a day. And this comes when we are only in the foothills of the rising prices that are to come. Our research has shown that, even before the Covid-19 outbreak, destitution was rapidly growing in scale and intensity. The real-terms cut to benefits raises the threat of destitution for many more people.

Our analysis ahead of the Spring Statement showed that the failure to uprate benefits in line with inflation will cost nine million low-income families an average of £500 in April, and pull 400,000 people into poverty. In that context, the measures the Chancellor did announce offer small comfort.

The additional funding for the Household Support Fund is a drop in the ocean when we consider the number of people who will reach crisis point in the coming months. A rise in the threshold at which people start paying National Insurance Contributions (NICs) sounds like a measure that would help those on low incomes. But most workers on Universal Credit will lose 55 per cent of the gain as their benefits are tapered away. And this change will offer nothing to those who aren’t working or can’t work due to disability, illness or caring responsibilities.

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The fuel duty cut will offer just £25 a year on average to the lowest-income households, as they are the least likely to drive. And the bigger problem with both the fuel duty cut and raising the NICs threshold is that they are very expensive policies, where more than half of every pound spent by the government goes to the richest half of households. Can the Chancellor really claim to be taking tough but responsible decisions by introducing such costly and poorly targeted measures?

Often there is a gap between rhetoric and reality in fiscal announcements. But this Spring Statement stands out for two reasons. Firstly, just how obvious the problem to be addressed was. As well as the evidence of rising hardship across the country, there was a rare level of consensus among think tanks, economists, commentators and charities that uprating benefits in line with current inflation levels was the right thing to do to ease the cost of living crisis. Secondly, just how far short Sunak has fallen in terms of addressing, or even acknowledging, the problem.

He promised to ensure “economic security” and to help “where we can make a difference” – and then he simply didn’t. Instead the Chancellor used his headroom for tax cuts that mainly benefit those that are already secure.

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