The number of UK households classed as destitute could rise by nearly a third to more than 1 million this spring after the government adds an increase in national insurance to the wider cost of living squeeze, a thinktank has warned.
The National Institute of Economic and Social Research (NIESR) urged ministers to reconsider the tax increase after it said destitution – which it defines as an inability to buy basic essentials – could increase by 30% in the next financial year if households are faced with a combination of rising inflation, higher bills and a greater tax burden.
In a report that accused the government of “powering down, not levelling up”, the thinktank said cost-of-living pressures were hitting the lowest-income households hardest, as they spend a greater proportion of their income on food and fuel.
It pointed out that those households were “heavily concentrated in some of the most economically deprived areas of the country, including parts of the north-west, Wales and pockets in London and the south-east”.
The NIESR said the chancellor, Rishi Sunak, should also increase government spending in his forthcoming budget to boost investment and allow public services to cope with higher inflation, leaving the Bank of England greater scope to tackle rising prices by increasing interest rates.
Jagjit Chadha, the NIESR director, accused the government of prematurely withdrawing its Covid-19 support measures, arguing that it limited the central bank’s ability to tackle rising prices.
He said Bank officials were forced to maintain ultra-low interest rates to prevent bankruptcies and hardship among poorer households when financial protection should be the Treasury’s job.
“The government has chosen to tighten primarily through fiscal policy, leaving monetary policy lagging the inflation cycle. This policy sequencing is the wrong way round,” he said.
Sunak is due to present new budget forecasts to parliament on 23 March.
The NIESR kept its growth forecasts largely unchanged from its last projections in November but revised up the outlook for inflation, which it expects to peak at 7% in the three months to June before returning to its 2% target in 2024.
Last week the Bank raised its main interest rate to 0.5% in the first back-to-back rate rise since 2004 and signalled further increases this year to above 1%.
The NIESR said it expected Britain’s economy to grow by 4.8% this year – stronger than the 3.75% forecast by the Bank last week – before slowing to 1.3% in 2023 and 0.9% in 2024.
In a blow to the Treasury, the thinktank estimated that British economic output in 2025 would be 4% lower than forecast just before the Covid-19 pandemic. This estimate of the scarring to the economy is higher than the 1% estimated by the Bank, though lower than the 12% decline after the 2008 global financial crisis.
The number of UK households living “in destitution” rose from 0.7% of all households in 2019 to 1.5% in 2020 – based on the income components of the widely recognised Joseph Rowntree Foundation definition of destitution.
According to the JRF, destitution means going without the essentials individuals need “to eat, stay warm and dry, and keep clean”.
