There was hope that the UK Government's Spring Statement would bring relief to people worried about the cost of living. But the announcements from Rishi Sunak on Wednesday have been criticised for not targeting those most in need.
The chancellor announced a change to fuel duty, cutting it by 5p per litre, and changes to thresholds for National Insurance. In 2024, there will be 1p cut to income tax. Some will clearly benefit from the announcements, but there are also plenty losing out through the Spring Statement.
One thing the chancellor did not do was increase benefits in line with inflation. Inflation-linked benefits and tax credits will rise by 3.1% from April but inflation has hit 6.2% by February 2022, up from 4.9% in the 12 months to January. The independent Joseph Rowntree Foundation has analysed the impact that will have, along with the 1.25% increase in National Insurance and change to the earnings threshold at which it is paid.
They say as a result, around 600,000 people will be pulled into poverty, of which around a quarter are children. Families in poverty will be £446 per year worse off in 2022-23 compared to if benefits had been uprated in line with current inflation levels. Households in poverty who are not in work – those who are either job seeking or unable to work due to ill health, disability or caring responsibilities – are particularly harshly affected by the changes. Middle-income households will lose £288.
The figures do not include the impact of the cut to fuel duty, however this is something likely to benefit higher income households more than lower income households, due to different levels of vehicle ownership and different consumption patterns.
How different types of households will be impacted:
The Wales Governance Centre has also released its own analysis of the impact of the Spring Statement. Their researchers say the chancellor's announced tax cuts provide broad-based support to households across the income distribution to assist with the cost of living but that they do not target the worst-hit, lower-income Welsh households, who benefit less from the fuel duty cut and the increase in the national insurance threshold.
They found the combination of tax policy changes and energy price increases will leave average Welsh households £315 a year worse off, even after the measures announced yesterday and in February have been applied. Welsh households in the poorest income decile will see the largest hit to their finances, exacerbated by a real terms reduction of more than 4% in working-age benefits, pension credit and the state pension.
Rising inflation has also wiped out 16% of the planned real increase in Welsh Government day-to-day spending by 2024-25, with no new funding announced.
Co-author of the briefing, Cian Siôn, said: “In the face of price rises and a real reduction in incomes, the chancellor was under considerable pressure to announce further measures to assist households with the cost of living. But by opting for tax cuts rather than more targeted measures, there was little in the way of additional support for those most affected by the cost-of-living crisis. The failure to uprate benefits by inflation this year is particularly disappointing.”
Guto Ifan added: "The Welsh Government’s block grant settlement announced in October now looks considerably less generous due to rising inflation. The inflationary pressures on public services will be influenced by pay settlements determined later this year – holding down nominal pay awards could have a detrimental impact on recruitment and retention of staff during the Covid-19 recovery.
"The outlook for devolved revenues continues to improve, which could provide a welcome boost to the Welsh Government’s spending power over coming years. However, these projections are based on forecasts, which are inherently uncertain."
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