Rishi Sunak has left low-income households to polish his tax breaks

It is difficult to overestimate the extent of cost of living crisis comes our way. Wage packages are falling this year and next, and household incomes will fall faster than at any time since registrations began in the 1950s. This inflation-driven squeeze will hit lower-income households the hardest, as they spend more of their budgets on food and fuel bills.

And yet in his Spring declarationthe chancellor failed to ensure that the aid is targeted at those who need it most, instead opting for a package where £ 2 out of every £ 3 of new aid goes to the richest half of the country.

In light of this almost unprecedented cost of living pressure, the Chancellor overlooked the fairest way to help households in need, which would have been to raise benefits in line with inflation in the coming year – which is set to hit 8.7 percent later this year. year. year – rather than the 3.1 per cent it was in September last year.

An acute pressure is the rising cost of driving, where petrol and diesel prices have risen more than 40 pence per liter over the past year. In response, the chancellor has reduced the fuel tax by 5 pence per. liters, which returns it to a real level not seen since the mid-1990s, saving the typical running household £ 75 per gallon. year. While this will help lower-income households for whom a car is a necessity, richer households that drive several miles a year will see the majority of the benefit.

More from Comment

Overall, Wednesday’s package will see middle-income households win the most and gain £ 420 over 2022-23. Compare this to just £ 136 for the poorest fifth of households, and it’s clear that the chancellor’s focus is not on households being hammered financially.

In terms of energy bills, the protection from the price cap has allowed the chancellor to postpone further action for the 22 million households on standard energy tariffs, even though they have already announced up to £ 350 per share. homes will not be available until October, by which time families will have paid monthly bills of £ 160 for half a year.

All forecasts show a further increase in energy costs coming in October, where bills could easily be double the current level against which the government’s loan-to-heat scheme will prove to be completely ineffective. Commodity prices may fall, of course, but a prepared government would look to protect households now, especially those most likely to fall into arrears this summer.

Reducing taxes on insulation and clean heat sources is a partial way to lock in lower energy bills, but the £ 50 million a year announced in the spring declaration will hardly make a dent in the more than 16 million homes to be insulated in 2035, nor do the four-out-five families living in the most leaky homes that are set to drop in fuel stress as bills rise. Crucially, there is still no support for lower-income homeowners who, whether or not VAT falls, are less likely to have the financial means to invest in their homes.

In addition to suffering from rising costs, poorer families will miss out on the 1p income tax give-away promised for 2024, which combined with a freeze on the income tax limit will only benefit those earning more than £ 49,000.

Tax breaks will dominate the headlines around the spring statement. But one step back, and the bigger picture remains one of a tax-raising chancellor. Tax revenues as a share of the economy are on track to hit their highest share of GDP since 1982-83 – equivalent to £ 3,000 extra for every household in the UK. Now there will be a need for tax increases to fund public services in an aging society. But the direction of travel, where tax spending is shifted from landlords to workers, is neither unavoidable nor desirable.

The spring statement was big on poorly targeted tax cuts. But there was not enough to help low-income families through our current cost of living crisis or enough to address the long-term prospects for weak growth that will leave families more exposed to future economic shocks. The imminent energy strategy is being looked for in response to the energy bill, otherwise it is a matter of waiting for the autumn budget for wider support.

Jonathan Marshall is a senior economist at the Resolution Foundation

Leave a Reply

Your email address will not be published.