Live Worse for Less – The Chancellor’s Diktat

The Rich and the Poor - Source: Pixabay Free to use
The Rich and the Poor – Source: Pixabay Free to use

When I wrote about the looming cost of living crisis back in January, the outlook was bleak for the most vulnerable people in society. After the chancellor’s spring statement, it is clear that he is not prepared to support those in most need.

In response to widespread criticism of the measures announced, Rishi Sunak has now said he “can’t do everything”. In fact, that should read that he is not prepared to do anything significant to help people who are already struggling to feed their families and heat their homes. Furthermore, by pre-announcing a tax cut clearly timed to suit the electoral cycle, the chancellor gave the impression of not caring about anything but political expediency.

What he is doing is reducing government borrowing while allowing people to go hungry and cold and increasing the number who will forced into absolute poverty. This is now on course to affect almost a fifth of the population, the Resolution Foundation predicts. It has said half a million more children are expected to fall below the breadline this financial year, bringing the total to 12.5 million across the UK, up from 11.2 million.

Cost-of-living crisis

According to the government’s fiscal watchdog, the Office for Budget Responsibility, UK inflation is set to hit a 40-year high of 8.7 percent at the end of the year as higher energy and commodity costs feed through to consumer prices. While prices in the shops go up, average wages remain stagnant. The average household will have to find at least £1,100 extra per year – just to afford the same stuff they did a year ago.

That is amounts to about 4 percent fall in income, with the poorest households facing a 6 percent fall. And that’s without taking into account the national insurance (NI) increases, which are still going ahead. The chancellor has raised the threshold at which NI contributions are paid by £3,000, which will be welcome to the lowest paid but does nothing for those just above the threshold who will have to pay an extra 25p in the pound. The rise means the government has gone back on a promise made in its 2019 election manifesto not to raise national insurance.

The decision to increase the rate of NI and cut the rate of income tax makes little sense. This benefits those living off pensions and unearned incomes at the expense of salaried workers. But for those on state pensions or benefits, the news is even worse. Benefits are at their lowest in real terms since 1985. State pensioners will receive an increase of 3.1 percent this April, that is 1.9 percent less than where inflation currently stands, and the same is true for those in receipt of income support or universal credit.

In terms of public spending, the chancellor chose to say little. Higher inflation means a decrease in the generosity of spending on public services, the levels of which were agreed last autumn in cash settlements. The NHS England budget is now set to grow by 3.6 percent per year, down from 4.1 percent since October forecasts, and the schools budget by 1.7 percent per year, down from 2.2 percent. 

This will of course have an impact on public sector pay, one of the largest elements of public expenditure. Millions of public sector workers face real-terms pay cuts after Sunak insisted that extra cash had to go to tax cuts rather than spending.

Energy price rises

The most urgent call on Sunak was to do more to protect us from the massive increases in energy prices. Ofgem has announced that the energy price cap will increase from 1 April for approximately 22 million customers. Those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year (difference due to rounding). Prepayment customers (often the most disadvantaged) will see an increase of £708 from £1,309 to £2,017. The price cap will be updated again in October with possible gas and electricity bills of more than £2,500 a year. Future bills will be simply unmanageable for working people and those who rely on income top ups with universal credit or other benefits.

In response to these massive energy price hikes, Sunak has given a £150 council tax rebate for properties in bands A to D next month, and a £200 cut to energy bills in October, to be repaid over five years. This buy-now-pay-later scheme has been roundly criticised both by the Conservatives’ political opponents and financial experts such as Martin Lewis, who called it a “worrying gamble” which risked unravelling if gas prices did not fall back as expected.

By contrast, the rise in wholesale energy prices has prompted other governments in Europe to put in place measures to shield consumers from the direct impact of rising prices. For example, the French government will force EDF, the state energy giant, to take an €8.4bn (£7bn) financial hit to protect households from rocketing energy costs by limiting bill hikes to 4 percent this year. In Spain, a windfall tax will be introduced on electricity generators and gas producers that are able to profit from the record market highs to help keep home energy bills low. 

The chancellor has been accused of being ‘missing in action’ as the sheer scale of consumer energy price hikes was revealed, doubtless preoccupied with his bid for the leadership of the Conservative Party as ‘Partygate’ called Johnson’s position into question.

Labour, the Lib Dems and the Greens have all called for a windfall tax on suppliers in order to fund more generous help to consumers. The shadow chancellor, Rachel Reeves, in her response to the spring statement, condemned Sunak’s failure to introduce one and many economists have agreed. Michael Jacobs, for example, argues that the case for taxing the huge profits made by the oil and gas – BP recently announced 2021 profits of £9.5bn while Shell made a massive £14bn (a four-fold increase) – is both a moral and economic necessity.

The chancellor instead chosen to listen to the giants of the energy industry who claim that any windfall tax on their obscene profits would be unfair, possibly illegal, and would prevent investment in in the North Sea, which is vital for the UK’s energy security. Professor Jacobs demolishes their arguments decisively.

An out-of-touch chancellor 

The moral imperative of giving more help to alleviate suffering seems not to be one which persuades a multi-millionaire chancellor whose wife is richer than the Queen. He so out of touch with ordinary people that he cannot possibly imagine what it is like to go hungry to feed your children like single-parent Tom, or to manage on a state pension like 89-year-old Jim – both of whom I wrote about in my previous article – who are relying on food banks and going to bed at 8pm to try and keep warm.

Sunak’s decisions are in essence ‘levelling down’ to destitution levels, while the majority of giveaways in his spring statement benefit only top earners. A cynically timed tax cut to be introduced just before the next general election reveals just what this government’s priorities are. Sunak, the Golden Boy of just a year ago, is rightly criticised even in right-wing newspapers like the Express. As Paul Kissack, chief executive of the Joseph Rowntree Trust writes, Sunak couldn’t even bring himself to mention the supposed flagship “levelling up agenda” in his statement.

The UK’s poorest people have been utterly abandoned by this ideological chancellor and Conservative Party policies mean thousands more will join the ranks of the poor.

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