Households were facing the biggest hit to their living standards since the 1950s as new support measures were announced by Chancellor Rishi Sunak. The Office for Budget Responsibility (OBR) outlined a short-term outlook where “real household disposable incomes per person fall by 2.2 per cent in 2022-23, the largest fall in a single financial year since ONS records began in 1956-57.”
The OBR said: “Petrol prices are already up a fifth since our October forecast and household energy bills are set to jump by 54 per cent in April. If wholesale energy prices remain as high as markets expect, energy bills are set to rise around another 40 per cent in October, pushing inflation to a 40-year high of 8.7 per cent in the fourth quarter of 2022.”
The OBR added that: “Taking account of both energy and non-energy pressures on household incomes, the policy measures announced since October offset a third of the overall fall in living standards that would otherwise have occurred in the coming 12 months.”
This is what has been announced in the spring statement with the experts view on whether measures are strong enough.
– What support has been offered to motorists?
Fuel duty on petrol and diesel will be cut by 5p per litre for the next year. Starting from 6pm on Wednesday, the reduction will last until March 2023.
However, petrol prices have already increased by 18p per litre in a month. Drivers have been hit by record fuel prices and figures from Experian Catalist show the average cost of a litre of petrol at UK forecourts on Tuesday was 167.3p, while diesel was 179.7p.
– What about help with household bills?
An extra £500 million has been announced for the household support fund, doubling its total amount to £1 billion to support vulnerable families with short-term crisis funding from local authorities. VAT will also be scrapped for energy efficiency measures such as solar panels, heat pumps and insulation to tackle high energy bills.
A family having a solar panel installed could see tax savings worth over £1,000, and savings on their energy bill of over £300 per year. The UK Government has already earmarked £9 billion for a energy bill rebate package, worth up to £350 each for around 28 million households.
Measures also contain an increase to the national living wage, worth £1,000 for full-time workers, and a cut to the universal credit taper. The OBR said: “Government support for household bills announced in February boosts most households’ incomes by £350 in 2022-23, offsetting around half the £700 rise in energy bills taking effect in April.”
– Will I pay less tax?
The Chancellor has announced an increase to the threshold at which people pay national insurance (NI), £12,570 to align with the income tax personal allowance, from July. However, from April, a new 1.25 percentage point health and social care levy is due to come into force, based on national insurance (NI) contributions. This money will be ringfenced for health and social care.
The Treasury says that 70 per cent of workers who pay national insurance will pay less of it, even after accounting for the new levy. Of those benefiting from the threshold increase, 2.2 million people will be taken out of paying national insurance altogether.
According to the Institute for Fiscal Studies (IFS) think-tank, the complete package of expected changes in earnings, taxes, and energy measures announced in February, a middle earner on £27,500 per year can expect to be about £360 worse off this year than they were last. It said the situation is likely to be “much tougher for those out-of-work on state support (including pensioners)”.
– What about the longer term?
The Chancellor plans to cut the basic rate of income tax from 20p to 19p from 2024. The cut is worth £5 billion for workers, savers and pensioners and will be the first cut to the basic rate in 16 years, according to the Treasury.
– Where are people saying there are gaps in support?
There have been calls for more help to support pensioners, people with disabilities and low income households. Some argue it does not go far enough to help struggling pensioners, who are dealing with inflation at a 30-year high of 6.2 per cent ahead of a 3.1 per cent state pension increase in April.
The pensions triple lock guarantee that raises pensions in line with earnings, inflation, or 2.5 per cent, has been temporarily shelved for a year. Jon Greer, head of retirement policy at Quilter, said: “Most (pensioners) probably won’t have already been planning to install solar panels and heat pumps and many older people either don’t drive or only take short journeys, meaning the cut on fuel duty is unlikely to offer a helping hand.”
Food banks and charities have been reporting surges in cries for help. Gareth McNab, director of external affairs at Christians Against Poverty, said Mr Sunak has left “a glaring hole in terms of an opportunity to provide a longer-term fix to make sure the social security system is linked to the real costs people face”.
Michael Clarke, from poverty charity Turn2us, said: “We’re already hearing how many household budgets simply can’t stretch anymore.”
Many people living with disabilities and illnesses such as cancer often face higher energy bills. James Taylor, director of strategy at disability equality charity Scope, said: “Amid the worst cost of living crisis in decades, we’re bitterly disappointed that the Chancellor hasn’t announced direct support for disabled people.”
IFS director Paul Johnson added: “Perhaps what really stands out is what was missing. In the face of what the OBR calls the biggest hit to household finances since comparable records began in 1956-57 (the Chancellor) has done nothing more for those dependent on benefits, the very poorest, besides a small amount of extra cash for local authorities to dispense at their discretion.
“Their benefits will rise by just 3.1 per cent for the coming financial year. Their cost of living could well rise by 10 per cent.”
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