On Wednesday Rishi Sunak will deliver his Spring Statement against the backdrop of a worsening cost of living crisis, with household bills rising and inflation rates soaring. This is why, above all, his priority must be to protect the incomes of the British public.
Sunak, hailed as Superman by the BBC at the start of the Covid-19 pandemic for his bold furlough scheme and temporary uplift to Universal Credit, has barely been seen in recent months as the cost-of-living crisis has intensified on British families.
From Santa to Scrooge in two years is a hell of a comedown. But the absentee chancellor has had little to say as economic crisis bears down on millions of families.
The Chancellor is not unaware of the problem, but the measures announced to date have been woefully inadequate. A one-off £200 energy bill loan is a sick joke when costs are rising by nearly £700 in April, and forecast to rise further still in October. Many householders will also get a £150 council tax rebate – but again this will offer little respite.
Last year the Government decided to suspend the pensions triple lock, claiming that it would have resulted in an anomalous rise in the state pension. That “anomalous” rise is now what inflation is forecast to be, and so the triple lock should be reinstated.
Every Conservative and Labour MP stood at the last election on manifestoes committing to retain the pensions triple lock (meaning pensions increase by inflation, average pay or 2.5 per cent, whichever is the greater). Only a few MPs, including the former shadow Chancellor, voted to maintain the triple lock, while the Labour frontbench appeared to abstain.
We already have two million pensioners living in poverty, and that number will rise further if action isn’t taken quickly. The same is also true for people of working age, reliant on benefits for their income or to top up low pay.
The Joseph Rowntree Foundation (JRF) says 400,000 people will fall into poverty if benefits are only uprated by 3.1 per cent this year (the current rate of increase). Inflation is currently 5.4 per cent, but is expected to rise further throughout the year – and, according to the Institute for Fiscal Studies, will average 8.4 per cent in 2022/23. The JRF is calling for a seven per cent increase, to better match the increase in the cost of living this coming year. Better still, the Government could reintroduce the £20 weekly uplift to Universal Credit.
And then there’s workers. Many low paid workers live in poverty as low pay and insecure hours blight the lives of millions. Seven in 10 children in poverty are in a working family and according to the Living Wage Foundation, 4.8 million workers earn less than the real living wage (£9.90 for the UK; £11.05 for London). This is likely to only get worse as the cost of living bites.
The NHS has a crisis of recruitment, with around 100,000 vacancies, yet our NHS staff are only being offered three per cent when inflation is already at 5.4 per cent. If inflation averages around 8.4 per cent this year, it will mean the average nurse (on a median salary of £26,000) will be over £1,400 worse off in real terms.
Local government workers have also only just settled the 2021/22 pay deal, and got only a measly 1.75 per cent. So a council worker on the same pay as the average nurse would be losing out by £1,700.
And that’s not the only hit they’ll be facing. From April there’s an increase in employee national insurance payments, and a stealth rise in income tax (as the Government is freezing the tax thresholds). Council tax in many parts of the country is due to rise between three and 4.5 per cent too.
All in all, many public sector workers look set to be around £2,000 worse off unless Rishi Sunak is forced to take action in the downgraded Spring Statement.
Without money in people’s pockets, the economy will suffer as people tighten their belts. Less money spent in the shops and on leisure activities will mean less tax revenue and could lead to job losses in those sectors. This threat is exacerbated by the chancellor’s decision to also hike employers’ national insurance contribution – increasing the cost of employment.
Labour’s call, backed by some backbench Conservatives, to scrap the rise in national insurance will do nothing for people on social security or pensioners – and is only a partial remedy for the losses many workers will be suffering.
If Rishi Sunak doesn’t use the Spring Statement to inflation-proof pensions, benefits and wages, he is condemning people to poverty, and risking a much worse and longer-lasting hit to the economy.
Andrew Fisher was Executive Director of Policy for the Labour Party from 2016 to 2019. He is the author of The Failed Experiment – a book about UK economic policy and the financial crash of 2007/08