Higher benefits uprating will provide four times more support to low-to-middle-income households than cancelling the national insurance increase, according to new analysis.
Uprating benefits by a further five percentage points to keep pace with inflation would deliver “four times more support to the bottom half of the income distribution per pound spent, than scrapping the rise in National Insurance Contributions (NICs)”, research by the Resolution Foundation suggests.
The analysis, entitled Softening The Blow, outlines a trio of support options which could be taken by Chancellor Rishi Sunak in his spring statement on Wednesday, as the think tank warned households could see “incomes fall by 4%” (or £1,000) this financial year (2022-23).
The three options include: increasing all working age and pensioner benefits by a further five percentage points in 2022-23 by 8.1 per cent rather than 3.1 per cent as planned; raising the national insurance threshold, or cancelling the 1.25 percentage point increase in NICs this April.
Low-to-middle income households will be hardest hit by the cost of living squeeze, especially when the energy price cap rises and should therefore be the priority for support
Cancelling the NICs rise “would see half the gains go to the richest fifth of households” according to the research, while increasing the uprating of benefits and the NICs threshold “would provide some badly needed respite for families in the year ahead”.
Resolution Foundation principal economist Adam Corlett warned that “rapidly rising inflation is on course to bring about the biggest income squeeze families across the UK have faced since the 1970s”.
He added: “While fuel duty cuts to relieve pressure at the petrol pump will inevitably be part of the package announced this week, the main income support will need to come from either the tax or benefits system.
“Low-to-middle income households will be hardest hit by the cost of living squeeze, especially when the energy price cap rises and should therefore be the priority for support.
“Raising benefits by a further five percentage points would deliver four times as much for these families as cancelling the national insurance rise, and should be the Chancellor’s top policy priority.
“But if Rishi Sunak is keen to demonstrate his tax-cutting credentials alongside raising benefits, then raising the national insurance threshold too would be the best route, as it is well targeted at middle income households.”
