Policy, Campaigns

Chancellor tinkers around the edges of the cost-of-living crisis

On Wednesday 23 March, Chancellor Rishi Sunak MP gave his Spring Statement, here's what happened...

Chancellor Rishi Sunak MP gave his Spring Statement on 23 March 2022. His overall messages were about the high level of uncertainty in the economy, an acknowledgement of rising inflation, his desire to cut taxes without jeopardising the public finances, and some measures to help ‘hard working people’ with the cost of living.

With rising inflation and a cost-of-living crisis hitting the poorest both at home and abroad, we said we’d be on the lookout for announcements in five areas in this statement: energy costs; fuel costs; benefits; National Insurance and the Health and Social Care levy; donations and giving.

So, how did the Chancellor measure up to these? It was a bit of a mixed-bag, with some welcome initiatives and some that make less sense. We’re apparently facing the biggest fall in living standards since the 1950s, according to the Office for Budget Responsibility, and this response didn’t feel commensurate with that.

Some policies will help some people that charities serve, but in total it’s hard to see how collectively they will improve conditions for large numbers of people in poverty (or will prevent people from falling into more difficult circumstances) – especially for those who aren’t working or can’t work for whatever reason.

1.Energy costs

The Chancellor reiterated his plan, previously announced in February, to soften the blow of the imminent rise in the energy price cap, which is set to send household energy bills skyrocketing in April. Called the Energy Bills Rebate, the Chancellor claims it will help around 28 million people and will cost £9bn. However, a big chunk of it is actually more of a ‘heat now pay later’ plan, because costs will be recouped from future bills. It’s a kind of loan that you will pay back to your energy supplier over time.

2. Fuel costs

Sunak led with a headline-generating announcement – a temporary cut of 5p in duty on petrol and diesel for the next 12 months. This will surely be popular with large swathes of the population, but with record high prices at the pumps, a 5p cut will only shave a small percentage off bills for motorists. Couldn’t the £2.4bn price tag have been better targeted at those most in need?

In a nod to the environmental impact of this reduction in tax on fossil fuel consumption, the Chancellor dovetailed the fuel duty cut with measures to introduce 0% VAT on ‘energy saving materials’ such as insulation and solar panels, for the next 5 years.

3. Benefits

Current high inflation is eroding the value of benefits for people who receive them. Apart from a temporary uplift for Universal Claimant recipients during the pandemic, during his tenure this Chancellor has done relatively little to modify the cuts to benefits introduced over the past decade. But not taking action is in a way a negative action; benefits recipients will sustain a real-terms cut, because the rate at which benefits are increased (or ‘uprated’) is being significantly outpaced by inflation and will likely do so for some time.

4. National Insurance and the ‘health and social care levy’

Despite much opposition and backbench pressure, the government is sticking with its plan to increase National Insurance (NI) contributions by 1.25 percentage points from April, to fund health and social care. However, the Chancellor’s most significant announcement was to increase the threshold for when NI starts to be paid from £9880 to £12,750.

This is a significant change and will benefit employed people on very low incomes who would have had less take home pay (but not exclusively – it will also benefit people further up the income scale). It has the added benefit of aligning the NI threshold with the current threshold for income tax. There is some uncertainty about how this will be phased in though, with the Chancellor mentioning ‘from July’ – will people earning between £9880 and £12,750 have to pay the increase April, May and June, but then have their NI contributions stopped from July?

In a move that will be welcomed by many in his party, the Chancellor also said he plans to cut the basic rate of income tax from 20% to 19% by 2024. Immediately after the speech leading commentators were already perplexed about this, especially set against the NI threshold change.

One word of caution for charities – 10 years ago, when the basic rate of income tax was changed, it threatened to seriously disrupt the operation of gift aid on donations and therefore the level of fundraising income. This requiring a cross-sector campaign targeting the then Chancellor, George Osborne. There could be similar implications this time.

5. Giving and donations

There was nothing on this, apart from mentions about the various humanitarian and military aid the UK government is providing to Ukraine. The words ‘charity’ and ‘fundraising’ don’t appear in the documents (which wasn’t much of a surprise).

However, Sunak did announce that he would double the amount of the Household Support Fund from £500m to £1bn, which goes to Local Authorities to provide support for ‘vulnerable households’. This funding is intended to help with the costs of essentials like food, clothing and utilities. Funding will go to local authorities in England and to the devolved administrations in other parts of the UK. Better than nothing, but it’s highly likely that local councils (and more importantly people in need) will find this insufficient given the current circumstances.



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