Posted March 23, 2022
In any other year the Chancellor’s Spring Statement might have passed with some focus but little fanfare. Not today’s though, given the domestic and international context in which it took place.
For us, all eyes were on what the Chancellor would do to help with the impact of the rising cost of living, with our recent research revealing just 20% of UK adults feel prepared to deal with this. Many people were desperately looking to see if the Government would go further to help people at the sharp end of the crisis. So, as the dust settles on the announcements, what have we seen?
1) Tax changes catch the headlines
The Chancellor’s ‘Tax Plan’ will no doubt be grabbing the headlines today. His promise to cut the basic rate of tax by 1% (from 20p to 19p) before the end of this Parliament in 2024 is certainly a big moment – both politically and economically.
More immediately, speculation that the Chancellor would act to limit the impact of the impending National Insurance (NI) rise proved correct. The Chancellor’s decision to increase the NI threshold by £3,000, meaning people must earn £12,570 per year before paying income tax or NI, is welcome. Snap analysis from the Institute for Fiscal Studies suggests this will compensate about 70% of workers against the NI increase due in April. In doing so, the Chancellor has taken away one source of worry from lower-income taxpayers, who no longer face such a hit to their incomes come July.
2) Big concerns on cost of living remain
However, without underestimating the significance of the tax announcements, there are rightly concerns that the Chancellor’s Statement simply did not go far enough to match the scale of the cost of living challenge facing households.
Of the Chancellor’s three self-proclaimed cost of living measures, it’s noticeable that only one – the £500m increase in funding for the Household Support Fund (HSF)– was really targeted at people on the lowest incomes.
While the 5p cut in fuel duty will be welcomed by motorists, data shows this disproportionately benefits people on higher incomes. And, while energy efficiency measures are certainly part of the solution to our longer-term energy challenge, households struggling to simply keep up with their monthly energy bill are unlikely to be able to benefit from the 5% cut in VAT on solar panels.
Even the Household Support Fund – welcome as it is - is really about supporting people with one-off emergency needs, through food vouchers or grants to buy essential items, rather than helping people facing a sustained period where their income simply doesn’t cover their essential costs – the situation many people are in. At National Debtline, two in five of the people we help have a ‘deficit budget’ meaning they don’t have enough money coming in to pay for their bills and essentials.
3) A statement noticeable for what it was missing?
Perhaps then, the Spring Statement was noteworthy as much for what it didn’t include, as what it did. Despite strong calls to do so, the Chancellor chose not to increase benefits further – meaning millions of households will face a real-term cut to their income.
With inflation hitting 6.2% today and predicted to rise to an average 7.4% over the year, this decision risks leaving more and more people struggling to pay their bills and facing worsening debt problems. Our recent research revealed that people on benefits were more than twice as likely as the wider population to already be behind on one or more household bill (35% compared to 15% of all UK adults).
Also absent from the Statement was any further help on rising energy bills, with the Chancellor instead pointing to the previously announced council tax and energy rebates. At National Debtline, we’re already seeing the proportion of people coming to us with energy arrears rising significantly (32% so far this year, compared to 23% in 2021).
Meeting the scale of the challenge
To sum up, the increases in the National Insurance threshold and the Household Support Fund are certainly welcome. However, they are not nearly enough. If the Government want to avert a growing crisis, they will need to go much further by significantly uprating benefits and introducing dedicated help for people on the lowest incomes who cannot afford their monthly energy bills. Without these measures, our fear is that millions more people will be pushed into financial difficulty in the coming months.
Find out more about our research and recommendations on the cost of living in our latest briefing Collision Course: A snapshot of the challenges facing households on the cost of living
Jane Tully is the Trust’s Acting Deputy Chief Executive and has served on the charity’s Senior Leadership Team since 2014. She leads our work on policy, communications, marketing and research. She previously worked for the Charity Finance Group, Charity Commission, NSPCC and local government. View all posts from Jane Tully.