A statement of lack of intent from SunakPosted: March 28, 2022
Rishi Sunak was always going to have to tackle the cost of living crisis in his Spring Statement and the big questions were how and who would benefit.
Faced with a choice between measures that would benefit the well-off, those on middle incomes and the least well-off, the chancellor did a bit for the first and second groups but more or less ignored the third.
He chose to increase the threshold for National Insurance at a cost of around £25bn over the next five years and followed that up with a 1p cut in the standard rate of income tax at a cost of more than £17bn over the three years from just before the next election in 2024 – though his previous decisions to freeze the tax thresholds and increase NI rates mean these tax ‘cuts’ were really tax rises.
Of the three new measures that he billed as ‘helping families with the cost of living’, the temporary 5p cut in fuel duty (£2.4bn next year) and cut in VAT on energy efficiency materials (£280m over the next five years) are good news if you can afford a car or improvements to your home but not much use otherwise.
The £500m increase in the Household Support Fund in 2022/23 will enable local authorities to help the most vulnerable households with the cost of essentials but it is a drop in the ocean compared to his action (or lack of it) on benefits in general.
To put this in perspective, the Office for Budget Responsibility (OBR) forecasts that average real disposable incomes will fall by 2.2 per cent next year, the most since records began.
However, the squeeze on benefits will be much greater than that.
Welfare spending this year will fall in nominal terms for the first time since 1948/49. That is partly down to falling unemployment but also reflects the withdrawal of the £20 a week Universal Credit uplift.
And things will get even worse in 2022/23 when benefits will rise by 3.1 per cent even though inflation will be running at more than 8 per cent. That 5 per cent gap will reduce the real terms value of benefits by £12bn.
The chancellor could have chosen to protect the least well-off by, for example, increasing benefits in line with the current inflation rate rather than last September’s or restoring the uplift. He made a political choice not to do either.
Even this will be an under-estimate of the impact for some people. Private renters will see their Local Housing Allowance frozen again regardless of what happens to rents as (in Treasury speak) LHA rates are ‘maintained at the elevated cash rates agreed for 2020/21’. Rightmove’s index of asking rents has them up 9.9 per cent on a year ago.
And even though benefits will be falling in real terms, the modest 3.1 per cent increase will drag more families into the benefit cap. This has been frozen since it was reduced to £23,000 a year in London and £20,000 elsewhere (£15,410 and £13,400 for single people) since Autumn 2016.
Finally, that increase in the Household Support Fund will be partially offset by a cut in Discretionary Housing Payments (DHPs) from £140m this year to £100m in 2022/23.
That’s bad enough in nominal terms but add the impact of inflation and that amounts to a cut of more than a third in real terms in the budget that is there to help people who fall through the gaping holes in the safety net.
All this will put a severe squeeze on the incomes of social tenants. One (perhaps the only) saving grace is that this year’s increase in social rents (‘only’ 4.1 per cent) was also linked to last September’s lower inflation rate – but that will also pose a big dilemma for next year.
If inflation rises as much as forecast, next year’s social rent rise could easily be pushing 10 per cent but will it really be sustainable to impose that on tenants whose incomes have been squeezed so severely?
If it isn’t, what will that do to the finances of social landlords that are already feeling the pinch from the costs of work on fire safety and decarbonisation and inflation that will reduce the real terms value of government grants and increase the costs of running their organisations?
And is it impossible to imagine the chancellor reneging on next year’s increase if it turns out that inflation has fallen again by the time of the 2023 Spring Statement?
This year’s version did nothing for the least well-off and the impacts will be dire: up to 1.3 million more people in absolute poverty, according to the Resolution Foundation.
The one measure in this year’s directly related to housing is the cut in the VAT rate on energy-saving materials from 5 per cent to zero.
The small print makes clear that this will be accompanied by a time-limited zero rate on their installation that the Treasury says could save a family £1,000 on solar roof panels plus £300 a year on their energy bills.
However, its own cost estimates of the measure (£45m in 2022/23 rising to £65m in 2026/27) tell you all you need to know about the real impact.
The narrow focus also completely misses the need for broader reform of VAT that would support a genuine drive for decarbonisation (and, leaseholders rightly point out, work on building safety).
It’s possible, of course, that a more substantial announcement on tax and investment in the insulation and decarbonisation of homes is being held back for the energy strategy that the government is due to publish next week.
If the arguments for this were already compelling and, as I’ve argued before, an open goal for levelling up, soaring gas and electricity prices and the need for greater energy security have made them overwhelming.
This is an updated version of a column originally written for Inside Housing.