The Budget: a masterclass in ignoring poverty

The headline measure in the Budget was a 2p cut in National Insurance. This gives the bottom fifth of earners around £350m a year, however the top fifth of earners will receive over 10 times more – more than £4Bn. This tax cut costs £10Bn a year and is the largest financial decision in the budget by a huge margin. It also represents a long-term choice to target resources on the wealthiest households rather than those with the least. While churches are seeing the consequences of rising and deepening poverty in communities across the country. that is the wrong choice.

Poverty, what poverty?

The word poverty was only mentioned once in the Chancellor’s Speech (and not at all by the Leader of the Opposition). The Chancellor told us that poverty was falling. This is correct if you choose to look at only one, increasingly outdated, measure[1]. If the Chancellor had instead heeded the National Statistician’s repeated warnings, he would have looked at the many other measures the Government collects and found that poverty is rising in every single other one.

Using one carefully selected and flawed statistic the Chancellor dismissed the fact that relative poverty has risen to 14.4 million people; that the Joseph Rowntree Foundation has found that 3.8 million individuals are now living in destitution, up from one million a decade ago; that Trussell Trust foodbanks provide a food parcel every 8 seconds; that Citizens Advice had found that 5 million people are now in “negative budget” where they must go deeper into debt simply to afford the very basics. I could go on.

Perhaps the most damning figure is that one million children experience destitution each year – unthinkable a decade ago – but this did not warrant a mention in the Budget. Local church, charity and community leaders are crying out that they are seeing increasing poverty, and we can see it as we walk through our towns and cities. Denial is not credible, but it is convenient.

Choices around household incomes

The biggest choice the Chancellor made – which was supported by the Opposition – was to cut employee National Insurance contributions by 2p. This costs around £10Bn, 42% of which will go to the wealthiest fifth of households, while only 3% will go to the least well-off fifth.

Today five out of every six households receiving Universal Credit are going without essentials. The six-month extension of the Household Support Fund, which provides funds to councils to help families struggling to meet their basic needs, is welcome, but it is a temporary measure that barely touches the sides of the problem. A decent social security system would at the very least ensure that everyone was able to afford the essentials.

For context, another choice could be to invest half of the NI cut, £5Bn, in raising the Universal Credit standard allowance. This would instead focus money on the lower end of the income spectrum and move around 350,000 people out of poverty. Even a quarter of that amount, £2.5Bn, could cover the costs of ending the two-child rule, which denies some benefits to the third and later children in a family, and would lift 490,000 children out of poverty.

The other large tax cuts, the fuel duty (£3Bn) and especially the increase in child benefit payments to families where someone earns £50,000 to £80,000 (£0.5Bn) also focus money on those higher up the income spectrum.

It is important to recognise that once ‘fiscal headroom’ – i.e. more money – is found in the Budget, it is a choice how to spend it. However, if the premise is that poverty is not growing, and it is not a political priority, then the choices made will not address poverty. If poverty is to be addressed, we need to make it a priority that politicians of no party can ignore.

Choices around public services

In real terms spending on public services per person is set to fall by around 7%. For the protected departments (including health and social care) spending stays flat – a challenge given an ageing society alongside rapidly increasing mental health needs. For non-protected departments the cut is around 18%. These are figures on a par with the cuts made in the austerity years of 2010 to 2015, but this time the cuts will be applied to public services that have been though one round of austerity followed by a pandemic.

This is the context of the Chancellor’s announcement of an “efficiency drive”. It may work, and certainly support for modernisation will be useful, but past attempts at increasing efficiency suggests some scepticism is warranted.

It is worth noting that the two lines of spending to boost efficiency are:

  • speeding up disability reassessments starting in April, with savings predicted because it is expected this will mean claimants’ benefit entitlements are reduced or lost more quickly
  • NHS modernisation, where spending does not commence for at least another year and after the next election

Cuts to services do not directly cause an increase in the poverty statistics. However it is important to recognise that reduced public services disproportionately affect the least well off, both because services are often needed most by the least well off, and also because those with money can afford to buy services like healthcare or education.

A work of fiction

Every Budget is accompanied by a report by the Office for Budget Responsibility, the government’s independent financial watchdog. One of its main functions is to demonstrate that the government will meet its fiscal rules. However, the OBR is legally obliged to use the Government’s published public spending plans, which are barely sketched out beyond 2025. As a result, in January the head of the OBR said:

“Some people call [the OBR projections] a work of fiction, but that is probably being generous when someone has bothered to write a work of fiction and the government hasn’t even bothered to write down what its departmental spending plans are underpinning the plans for public services.”

While the Government has set out its tax plans in detail, the spending plans offered do not look credible. The result is a forecast that says the fiscal rules are met even after £10Bn in pre-election tax cuts. This Budget is underpinned by unrealistic assumptions. This is not a serious way of doing government, and nor is it serious of the Opposition to accept these plans as a deliverable basis for policy going forward.

A politics that engages with reality

Two days before the Budget, the Office of National Statistics published data to show that trust in political parties had fallen from its record low of 20% in 2022 to a new record low of 12% this year. Political parties basing policies on fictional financial forecasts, and denying obvious realities such as rising poverty, are doing the country – and their reputation – no favours.

The Churches are supporting the Let’s End Poverty movement because we recognise the reality of deepening poverty in communities up and down the country. The movement is calling for our society and our political leaders to have a serious debate about poverty – engaging with both the economic reality and the lived experience of poverty. This Budget did not do that. The next Budget must.

Further resources

[1] The “Absolute Poverty” measure takes the relative poverty line form 2010 and uprates it for inflation. Because the poorest spend more of their income on food, fuel and rent the inflation experienced by low-income families is consistently underestimated.  Over the 14-years since the measure was calibrated these inaccuracies and others have compounded themselves such that long term comparisons using this measure are increasingly meaningless.


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