Amid a cost-of-living crisis, Rishi Sunak should have done more to help the most vulnerable
Amidst a worsening cost-of-living crisis, this week’s Spring Statement represented an opportunity for the Chancellor to get ahead of the curve in supporting people through the very challenging months ahead of us.
The spiralling cost of energy will be a key driver of inflation this year, and I was pleased to see the Chancellor take measures to address this, including reducing fuel duty by 5p; removing VAT on the installation of energy efficiency materials; and increasing the Household Support Fund by £500 million. The increase in the National Insurance threshold, to equalise it with the Personal Allowance for Income Tax, also delivers on a 2019 Conservative Party manifesto commitment and will offset for some lower-income households the introduction of the Health and Social Care Levy.
However, having called on the Chancellor to introduce targeted support for the most vulnerable, specifically through providing for a real-terms increase in Universal Credit, I am disappointed that he did not address this in his Statement.
Instead, he confirmed by omission that benefits will be uprated by just 3.1 per cent in April, with the OBR now forecasting that inflation will climb to 8.7 per cent in the final quarter of the year. This means that Universal Credit and other benefit claimants, who are most exposed to inflationary pressures, will once again see a significant fall in their spending power following a decade of real-terms freezes or cuts.
The prevailing attitude that 'more work is always the answer' cannot spare everyone from potential destitution
The effects of this could imperil the livelihoods of those who are a long way from the workplace, face complicated circumstances and, for a variety of reasons, cannot simply work their way out of poverty. Based on inflation forecasts of just 7 per cent, recent analysis undertaken by the Joseph Rowntree Foundation showed that 400,000 people could be pulled into poverty by this real-terms cut, with nine million families who receive means-tested benefits becoming on average £500 per year worse off as a result. The projected figures based on the new forecasts are now significantly higher.
Whilst the measures announced will go some way to alleviating the crisis for many families, it is worth putting in context the more negligible impact they will have for the most vulnerable.
Analysis by the New Economics Foundation suggests that the fuel duty cut will save the poorest 20 per cent of households an average of just £1.80/month. The Chancellor should be applauded for taking action to improve energy efficiency but, amidst the cost-of-living crisis, poorer households will not have the luxury of installing solar panels or heat pumps.
Meanwhile, it can be difficult to ensure that discretionary local council grants, such as the Household Support Fund, reach those who need them the most. Even if they do, such grants represent one-off payments which cannot supplement income levels in the way Universal Credit is designed to.
Having been forced to increase taxes in recent times to pay for the pandemic and deliver a sustainable funding model for social care, the Chancellor is keen to brandish his tax-cutting credentials, and as a Conservative I sympathise with this. However, it is worth noting that the £5 billion projected cost of the future cut in the basic rate of income tax is close to what was required to make the pandemic-induced £20 uplift to Universal Credit permanent. I called for this when the uplift was withdrawn last September and continue to believe that the government made a strategic mistake in doing this.
Having not remedied this mistake in his Statement, I fear that the Chancellor has now doubled down on it. With the economy in a state of near full employment, we must recognise the prevailing attitude that “more work is always the answer” cannot spare everyone the potential destitution some now face. The government would do well to be mindful of this in the months ahead.
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