Cost of living crisis: Rishi Sunak must at least increase UK benefits | Richard Partington


OWith or without a cost-of-living emergency, the British government seemed vulnerable. A chancellor losing his golden touch, a prime minister questioned by police over the lockdown party. Boris Johnson’s party is going from scandal to scandal.

The fact that households are experiencing the greatest strain on living standards since modern records began in the 1950s adds insult to injury, ahead of a local election campaign that will test the Conservative winning machine votes. For those canvassing the party ahead of next month’s election, what positive news is there to talk about?

Last year, at this time, the political landscape was very different. Furlough had kept the worst economic ravages of Covid at bay, while a hoped-for end to the pandemic was in sight thanks to rapid progress in the vaccination programme. Johnson was on a high, promising “hits, hits, hits and jobs, jobs, jobs” as his party crushes Labor in the polls.

When voters go to the polls on May 5, they will have less to feel good about. Growth may have returned, but for many it will not. While the average household budget was barely affected by the Covid recession, with many record savings during the lockdown thanks to government support, this year will be marked by the lack of aid as incomes plummet. Despite overall economic growth, the typical family will face the worst financial damage since records began around the time post-war rationing ended.

In the past four decades, real household disposable income has only fallen four times: three times after the 2008 financial crisis, and again after Brexit crashed the pound, sending it plummeting Britain’s purchasing power.

Officially, the British economy regained its pre-Covid level at the turn of the year, after a strong but fortunately short recession. However, the downturn continues for most people, with average real incomes now expected to take until 2024 to rebound, two years later.

Given these factors, it’s surprising that Rishi Sunak chose not to do more in his spring mini budget. The Chancellor liked to talk about “building a bridge” over the economic ravine opened up by Covid. Although he was largely successful, the task is clearly not done.

According to New Economy Foundation, more than 34% of the population – up to 23.5 million people – will not be able to afford the cost of living this year. Using a metric known as the minimum income standard – based on a public poll of what people think is needed to meet socially accepted basic expenses – she estimates that almost half of all children will fall into below the line.

The hit will be felt most strongly outside London and the South East, with 44% of all families in the North East falling below the minimum income standard. Given that the cut will disproportionately impact poorer regions, it is all the more remarkable that Sunak omitted any new leveling funding during his spring statement.

After the refusal to increase benefits in line with soaring inflation, the Joseph Rowntree Foundation says Britain will see the biggest fall in the value of the basic unemployment benefit rate in 50 years. After a decade of cuts and freezes as part of the Conservatives’ austerity drive, that advantage has waned in eight of the past 10 years. Not only have the Conservatives failed to alleviate the current cost of living crisis, they have dismantled vital support systems in the years leading up to it.

The great danger now is that such intransigence could create the conditions for a worse recession to come. Most forecasters expect the pressure on households to ease next year, but the risks are growing that what started as a temporary pinch could be stuck for much longer.

There is talk of a recession on both sides of the Atlantic. With household finances hit hard, consumer spending is set to slow sharply, while the prospect of a sustained uptick in business investment could be put on the back burner due to rising uncertainty. In the United States, economists have begun to warn that a recession shock arrived.

Official figures this week are expected to show a slowdown in the UK economy in February and a further rise in inflation. Last month, the Office for Budget Responsibility said there was a one in five chance that GDP would fall this year or next, amid uncertainty over Russia’s war in Ukraine, inflation, global commodity prices and Covid.

There is growing recognition that Sunak will have to do more. Steffan Ball, chief UK economist at Goldman Sachs and former chairman of former Tory Chancellor Phillip Hammond’s board of economic advisers, expects Sunak to be called upon to act.

First and foremost, an increase in benefits is needed to cushion the blow of the soaring cost of living. In addition to doing so for fundamental reasons of fairness and to support broader activity in a failing economy, Ball highlights a technical inconsistency that could be corrected.

Since the 1980s, governments have typically increased the value of benefits each April based on the previous September’s inflation rate, in an effort to keep them in line with the cost of living. For this year, however, last fall’s inflation rate of 3.1% now looks very out of step as the cost of living inflation measure jumps towards 8%.

Looking ahead to this autumn, the OBR forecasts inflation to be 7.5% in September, meaning that a sharp increase in well-being is forecast for spring 2023. Yet, while households in need most now and that inflation is expected to come down sharply the next time around. year, it might be justified to advance the increase.

The government must, at a minimum, increase the value of benefits to show that it is committed to helping those who need it most. Failure to do so would only ensure that the conditions of increasing poverty become entrenched, while political parties with a record of impoverishment tend not to do well in the polls.


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