ourEconomy: Analysis

Why Rishi Sunak’s Spring Statement was tone deaf to the UK economic crisis

The chancellor helped out middle-income households, but left the poorest with just a fraction of the support they will need as energy and food prices soar

Laurie Macfarlane
23 March 2022, 4.43pm

Rishi Sunak's Spring Statement does nothing to help those who are most in need

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Imageplotter/Alamy Live News

Rishi Sunak’s Spring Statement, delivered to Parliament today, was notable for one thing only: its complete disregard for the hardship facing millions of households.

Inflation this week soared to 6.2% – a 30-year high. The Bank of England expects rising energy, fuel and food costs to drive it up to 8% within months. For low-income households, the scale of price increases could be much greater.

With around a fifth of UK adults having less than £100 in the bank, rising prices are set to push millions of households into financial hardship. The debt charity StepChange estimates that if energy bills hit £3,000 per year – which the industry says could happen before 2022 is up – the most financially vulnerable households will be spending £1 in every £6 they earn on energy. Campaigners estimate that more than a quarter of homes in England – more than 15 million people – will be in fuel poverty from next month.

Yet the chancellor offered nothing new to ease the enormous looming pressure on household bills. Instead, he pledged to increase the Household Support Fund – established to help people through the winter, and distributed by local authorities – by £500m. But with households facing a £38bn hit due to rising energy bills, this is like giving someone pocket change to help them buy a house.

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Calls to ease bills by levying a windfall tax on fossil fuel companies – which have seen profits quadruple as a result of skyrocketing gas prices – went unheeded, despite receiving popular support from across the political spectrum.

In a move that was lobbied intensely for by Tory MPs and much trailed in the media, the chancellor announced a temporary 5p cut to fuel duty. But when the priority is to ease cost of living pressures, the policy is spectacularly misguided. According to analysis from the New Economics Foundation, 40% of the poorest households do not own a car, and the richest fifth spend almost five times as much on fuel each year as the bottom fifth. As a result, just 7% of the fuel duty relief will reach the poorest fifth of households, while 33% would flow to the richest fifth.

The coming year looks set to be the toughest in living memory

Fuel duty wasn’t the only tax to be slashed in the statement. The chancellor also announced a new ‘Tax Plan’ that will deliver a “principled approach to cutting taxes”, beginning with National Insurance (NI). From July this year, the NI threshold will increase by £3,000, meaning a worker’s first £12,570 of earnings will be exempt from NI contributions. While the government claims this will save the typical employee over £330 a year, providing a degree of financial relief for working households, analysis from the Resolution Foundation indicates that middle-income households will benefit the most.

The chancellor also announced that the basic rate of income tax will be cut from 20p to 19p from 2024. However, a tax cut in two years’ time does nothing to help households today – and it is more than offset by the previously announced 1.25% increase in NI contributions that will come into effect in April this year.

Perhaps the biggest failing of the package is that it does nothing to help those who are most in need.

Those receiving benefits will see payments increase by 3.1% in April, but with inflation already soaring far higher than this, payments are set to fall significantly in real terms. This follows the chancellor's decision to slash Universal Credit by £1,000 a year in October last year, representing a double hammer blow for millions of households.

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At the same time, incomes have been stagnating for more than a decade. Real average weekly earnings – earnings after inflation is taken into account – are no higher today than they were in 2008. For those who rely on benefits, things have been even worse. Before the pandemic hit, real incomes for the lowest-income households were no higher than in 2001-02, thanks to years of sustained welfare cuts.

In a report published this week, the Office for Budget Responsibility predicted that “real household disposable incomes per person [will] fall by 2.2% in 2022-23, the largest fall in a single financial year since ONS records began in 1956-57”. In other words: the coming year looks set to be the toughest in living memory.

To oversee major cuts to the welfare system at a time when it is needed most reveals a careless disregard for those at the sharp end of the crisis.

Overall the message resonating from the statement is clear: the UK is sleepwalking into a cost of living catastrophe and the government doesn't appear to care.

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