Going into last week’s Spring Statement, over a third of households were predicted to be unable to afford life’s essentials come April. Rishi Sunak had significant room to spend more to support them. The government took in £38bn more in taxes than expected, mainly from higher income and corporation tax receipts. Public sector borrowing was £55bn less than forecast by the Office for Budget Responsibility in October. At the same time, costs on government borrowing are proportionally lower than virtually all years since the Second World War. Yet the Chancellor chose to disregard this and deliver a Spring Statement ushering in the biggest fall in living standards since records began in the 1950s.
One of the main costs hitting households is soaring energy bills, caused by volatility in gas prices as a result of the pandemic, and compounded by economic sanctions on Russia. The energy price cap, instituted in 2019, was meant to protect UK customers against such volatility by capping the amount households are charged for energy – but the rise in gas prices has been so high (up 450% since last March) that costs are being passed to consumers. Putting a cork in prices has already seen 40 small energy suppliers go bust, leading Ofgem to allow energy bills to rise by 54% from April. Citizens Advice warned that around five million people simply will not have the money to pay their energy bills from next month, with an additional nine million falling behind from October.
Sunak’s support package last month, relatively unchanged in his statement, was widely noted as incommensurate with the scale of the crisis. The New Economics Foundation (NEF) found that the poorest households will be over £420 worse off per year from April, despite the council tax and energy bill rebate. Last week’s announcements – raising the National Insurance contribution (NIC) threshold, reducing income tax by 2024 and cutting fuel duty – do little to mitigate this. In fact, cutting fuel duty by 5p and changes to NIC will put just £90 a year back in the pockets of the poorest tenth of households, compared to £580 for the richest tenth. This was not a budget designed to keep struggling families afloat – it was an opportunity for Sunak to demonstrate his commitment to low taxes to the rest of the Conservative Party.
The cost of living only becomes a crisis when people are not given the resources to meet it. Wages have stagnated for decades and real earnings aren’t expected to return to pre-2008 levels until 2027. The Chancellor chose to ignore our best way of targeting support to those who need it: the social security system. He claimed that middle-income households needed help too, yet every household in the UK is set to become poorer despite the cumulative £350 extra from the council tax and energy rebate. Boosting the benefits system would get a significant amount of money to the households that need it most, helping them afford life’s essentials even while the cost of living is high.
In the longer term, the government is rightly thinking about weaning ourselves off fossil fuels. The shift in transport is well under way with the latest figures showing that nearly one in every three cars purchased in the year so far came with a plug. But the real challenge is how we heat our homes, which take up 40% of all the gas we use in the UK. We have older housing than every EU country, and our homes leak heat three times faster than those in northern Europe. A national programme of upgrading our homes would cushion the effect of soaring gas prices and keep families warm. And expanding our renewable energy would mean we can heat our homes without polluting our communities or atmosphere.
Last week, the Chancellor cut VAT on energy-efficiency measures like insulation – an important step in the right direction. But without a concurrent plan of grants and loans, this might only benefit wealthier homeowners who were already in a position to pay for home retrofits. In the fifth-richest country in the world, pensioners are already skipping meals so they can pay their energy bills, and parents are only switching on the heating when their kids are at home. Money Saving Expert Martin Lewis put it succinctly when he said he was “virtually out of tools to help people” manage their money during the cost of living crisis and that significant political intervention was the only option – something we did not get from the Chancellor.
Chaitanya Kumar is head of environment and green transition at the New Economics Foundation
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