Politicians’ speeches are often as notable for the things they don’t say as for those they do. Rishi Sunak’s spring statement yesterday was a case in point.
Sunak made several eye-catching announcements. The income at which employees will start paying national insurance contributions will be raised by £3,000, taking many people out of the tax altogether. Fuel duty has been cut by 5p a litre. Income tax will be cut by 1p in 2024.
The chancellor chose to make the poorest even poorer
But the biggest single announcement in the chancellor’s mini-budget was the one he didn’t mention. He has decided that benefits and pensions will only rise by 3.1 percent this coming year. That was the level of inflation last October, which is the month normally used to calculate how much benefits and pensions should rise to keep pace with the cost of living.
But inflation is nothing like 3 percent now. On the contrary, the current rate is just over 6 percent, and the forecasts are for it to rise to 8–9 percent, or even more, over the coming months.
So what does that mean for the 19 million people dependent on benefits such as universal credit, sickness and disability benefits and the state pension? It means that the chancellor has chosen to cut their real income (that is, their income once inflation is taken into account) by on average £450 over the next year. This comes on top of the cut in universal credit of £1,000, which the chancellor made in the autumn, when he removed the £20 a week uplift introduced in the pandemic.
So in effect, the chancellor has chosen to make the poorest people in our society around £1,500 worse off next year. Given that the higher cost of living is already forcing many families to choose between heating and eating, this is a remarkable thing to have done. The Resolution Foundation calculates that 1.3 million people are set to fall into absolute poverty next year, including half a million children.
Sunak raised taxes for seven out of eight taxpayers
Chancellors have to make two big decisions in their budgets and mini-budgets like this one. One is whether to increase or decrease overall spending and taxation. The other is how to distribute the gains and losses between different income groups in society.
Sunak has decided, first, to raise taxes to pay for the slightly higher spending he announced in the autumn. Although he claimed yesterday to be cutting taxes, this is simply not true.
Yes, he plans to cut the basic rate of income tax in two years’ time. But Sunak is also freezing the thresholds at which people start paying the basic and higher rates, meaning that in real terms they are being reduced. At the same time he is raising national insurance contributions (the so-called ‘health and social care levy’). The combined effect of these measures is that seven out of eight taxpayers will be paying more tax in two years’ time, and only one in eight paying less.
Redistributing income in favour of the richest
And in terms of the distribution of costs and benefits across income groups? The Joseph Rowntree Foundation calculates that the income tax, national insurance and benefit measures announced yesterday will result in the poorest tenth of working age households losing just under 5 percent of their income, the next poorest tenth around 3 percent, while the richest half of the population either gain a little or lose less than 1 percent.
That is, Sunak has chosen to impose the cost of his budget primarily on the least well off in society, and to protect the incomes of the most well off.
Prioritising Tory MPs and party members
Touring the broadcast studios this morning the chancellor has been insisting that lower income households are his top priority. Most commentators are suggesting that it is Tory MPs and members – those who will choose the next Conservative Party leader – who are actually his target voters. It remains to be seen whether they will regard the spring statement as a reason to support Sunak’s leadership bid, or to reject him as being entirely out of touch with ordinary people’s lives.