When it comes to energy bills, gasoline costs and food prices, Rishi Sunak faces tough decisions in his latest spending announcement next week.
The Chancellor is under intense pressure from all quarters to provide extra help to struggling households, but has so far been resolute in insisting he pursues a National Insurance hike and an effective tax hike on income.
These measures threaten to worsen the impact of the worst fall in living standards in decades.
So what could he do?
Campaigners, charities and some economists are urging the Chancellor to do two things: scrap tax hikes and provide a significant package of targeted support for those on the lowest incomes.
There are strong arguments for this. It has billions of pounds more than the government’s forecast watchdog predicted just months ago, thanks to better-than-expected tax revenues.
However, this would represent a big turnaround. Just a few weeks ago, the Chancellor and the Prime Minister wrote a joint article in the Times in which they strongly supported keeping the National Insurance increase in place.
Although the pair may present a united front in public, it is clear there is a split between the Prime Minister, who is believed to be in favor of providing more aid, and the Chancellor, who wants to keep a tight grip on the purse strings.
Russia’s invasion of Ukraine – and the resulting increases in energy and food costs – may have tipped the balance in favor of additional spending, but Sunak is unlikely to be easily persuaded.
He would like to be able to cut taxes before the next general election, which has prompted anti-poverty charities to accuse him of playing politics instead of doing what is best for the country.
One of the best ways to target support to those most in need would be to increase benefit payments, but Sunak has so far chosen not to do so.
The increase in benefit payments is not very popular among members of the Conservative Party – the very group of people who would vote on who will become leader when Boris Johnson’s time is up.
The Chancellor’s alternative approach, announced earlier this year, of cutting household energy bills by £200 and then recouping the money by increasing bills in subsequent years has been widely criticised.
He also promised a £150 council tax cut for millions of people, but the measure is poorly targeted, with many poorer households missing out while many wealthy people receive help.
Taken together, the schemes barely cover a quarter of the extra £38billion energy customers will pay on their bills this year.
It is possible that the Chancellor will make these measures more generous, but that would not make them better targeted.
Industry leaders who have met with Treasury officials in recent days sense a softening of the department’s hardline approach to fiscal discipline.
“They understand that rebates and loans have been poorly received and appear to be in listening mode,” said a source who met with the Treasury late last week.
The consequences of not providing additional help could be serious. National Energy Action estimates around 8.5 million people will be unable to adequately heat their home energy bills to £3,000 a year for an average customer. This would mean that energy poverty has more than doubled in one year.
Households with the lowest incomes will be hardest hit. Many enter this crisis in an already precarious financial situation, struggling to make ends meet after years of stagnant wages and reduced benefits.
Older people on low incomes are expected to be among the hardest hit, with Age UK estimating that 9 out of 10 older households on the lowest incomes would be in energy stress.
Accurate and up-to-date figures on the number of people facing destitution, unable to afford basic necessities like adequate clothing and heating, are not currently available as data collection has been interrupted by the pandemic.
What is known is that before Covid hit, the Joseph Rowntree Foundation had seen a significant increase in misery.
Without help, a further large increase is considered inevitable. Sara Ogilvie, of the group Child Poverty Action, said many families have faced a cost of living crisis for years but are still “terrified” by what they are facing.
“They’ve been dealing with it for years. They have no savings. They have nothing left to fall back on.”
The charity, along with the JRF, the Resolution Foundation and others are calling for benefits to increase in line with inflation.
This would mean a further 5% increase in Universal Credit, on top of the 3.1% already planned.
In his fall budget, Sunak slashed the Universal Credit sliding rate in his fall budget, allowing claimants to keep more of their benefits as their salary increases — he could cut it further.
Whatever approach the Chancellor takes, doing nothing seems increasingly untenable.
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This notice was published: 2022-03-14 18:07:24