The Chancellor’s central message was that this Budget would provide families and businesses with the “breathing space” they need while longer-term reforms are put in place.
The Budget contains almost 100 individual policy measures, most with relatively small financial impacts. Many are intended to ease immediate pressures on household and business finances. However, there are real questions about whether they are sufficient and well enough targeted, particularly for lower-income households, whose budgets remain under the greatest strain.
While most attention will focus on the immediate cost-of-living measures, many of the reforms with the greatest long-term economic significance are set out in a raft of supplementary papers published alongside the Budget. Some are ready for implementation, while others are works in progress.
Financial pressures increasing for most people; but falling hardest on the least well off
The Office for Budget Responsibility (OBR) report paints a picture of an economy battered by a series of shocks, most recently by an inflation spike caused by the US/Israel/Iran War, leaving household finances increasingly stretched. What was once expected to be a temporary “Cost of Living Crisis” has instead ossified into sustained pressure on household budgets.
The OBR’s forecasts suggest these pressures are unlikely to go away soon. Average earnings growth has been weak since before the pandemic and is expected to slow further, while real household disposable incomes are forecast to increase by just 1% across the entire decade. Such a prolonged period of stagnation would be unprecedented in post-war Britain.
However, this is an average figure that masks wide differences between richer and poorer households. Recent research from the Joseph Rowntree Foundation shows particularly substantial falls in disposable income among the poorest fifth of households.
Help with energy costs
In the run-up to the Budget, polling indicated that the rising cost of living remained the public’s top concern, particularly the prospect of higher energy bills. With household energy costs expected to increase by 16% in January, the average annual bill is set to rise by around £270 to almost £2,000. To help offset this increase, the Chancellor announced a £100 payment for households in the lowest four Council Tax bands, at a cost of £2.6 billion.
This support is broad, reaching around four in five households. However, using Council Tax bands as the eligibility criterion means it is only loosely targeted at those on the lowest incomes. As a result, an estimated 10-15% of the poorest families will miss out altogether1.
Alongside this, the temporary removal of VAT on electricity bills will save households around £50 a year on average. The Government also plans to move the costs currently covered by gas standing charges into unit prices. While this will not reduce overall energy costs, it shifts more of the bill into consumers’ control, benefiting households that use less energy and are able to reduce their consumption.
A symptom of increasing financial pressures caused by high energy prices is households falling into arrears. Debts owed to energy companies have tripled in the last 3 years to £5Bn. One of the papers published alongside the budget was from OFGEM setting out a strategy on how to reduce that burden and prevent it building up further. Importantly it emphasises early support, flexibility from suppliers, and the importance of writing off unpayable debts early.
Rough Sleeping
The Government has made the welcome commitment to provide “a route off the streets” for every rough sleeper. The Budget allocates an additional £430 million to support this ambition, bringing total spending to £870 million between now and the end of the decade. While this appears to be funding on a scale commensurate with the goal, success will still depend on sustained political commitment from both central and, especially, local government.
Beyond the “breathing space”
As mentioned above, the Budget was published alongside a raft of supplementary papers that set out some long-term direction. Some policies are ready for implementation, while most are works in progress. Two immediately stood out.
Pricing the future
There is a paper recommending altering the “Green Book discount rate” which sounds like the definition of dry and technical policy but should be significant. Reducing discount rates mean that long-term benefits of public investment are given greater weight in government decision-making.
Moreover, the long term costs of inaction are also given greater weight. Twenty years ago, the Stern Review into the economics of Climate Change highlighted the importance of reducing the discount rate to spur on investment in preventing climate change. If you want government decision making to have a longer-term orientation, this is an important step in encouraging that.
Devolution
Another of the supporting documents is the “Fiscal Devolution Roadmap”. It has been widely accepted across the political spectrum that the UK is too centralised. Decisions are too often taken in Westminster rather than in the communities that are most affected by them. This echoes the principle of subsidiarity in Catholic Social Teaching: that decisions should be taken at the lowest appropriate level – as close as possible to the people they affect.
Successive governments have said they wanted to decentralise power, but they have found it incredibly difficult to do in practice – not least because it comes with practical challenges accompanied by big political risks. The difference between empowering local communities and creating yet another layer of bureaucracy lies in the detail of how powers and resources are transferred. The Roadmap is a first step in setting out what devolution will mean in practice.
And finally …. Social Security
The Chancellor largely parked anything to do with social security, saying that he would respond to next month’s reviews of Personal Independence Payment and Youth Unemployment. However, cutting welfare was the central theme of the Leader of the Opposition’s response.
All parties are now promising to cut overall benefits expenditure. The Government says it will do so by getting more people into work. The Conservatives and Reform both want to restrict eligibility for benefits as well as reduce their rates – which they assert will increase employment.
This isn’t the place to dissect those proposals, but it is worth noting that working age social security spending as a proportion of GDP is at a similar level to in 2015/16 and indeed in the same ballpark as it has been since the 1990s. Wanting to cut benefits is a legitimate political position but it cannot be justified by saying they have increased rapidly.
It is troubling to hear social security being held up as a place where huge sums of money can be found. It has repeatedly been tried before with very little financial reward but at the cost of a great deal of human cost. Moreover, when politicians fail to make savings, they are left with the choice of who to blame – their policy or the claimants. It’s not usually much of a choice.
I personally can see no just and economically sustainable world where the UK spends less than 5% of GDP in supporting working age families and children. Moreover, I have never seen any explanation of how radical reductions could happen without enormous hardship or a radical redesign of both housing and labour markets.
What now for Justice Seeking church members?
In the short term for many families this will be a difficult winter. Warm Welcome spaces will reopen; foodbanks, debts centres, pay as you feel cafes and all the other projects run and hosted by churches will continue to be needed, but perhaps a little bit more than before. That is how churches have provided “breathing space” to people in their communities that need it.
Longer term we need a social security system that enables families to afford the essentials when they fall on hard times. Research published this week highlights that having the essentials provides a platform to improve health, seek training and find employment. All the JPIT denominations alongside many others, support the Guarantee our Essentials campaign and there are actions for churches and individuals to take on their website.
Our tax system was designed for a time when people shopped on the high street and wealth did not concentrate so rapidly. Church leaders signed a letter to the Chancellor asking for wealth to be taxed appropriately so that all who benefit from our society make a proportionate contribution. You can join in with Just Money’s campaigns on Wealth Taxes and Amazon here.