Wealthiest gain £475, poorest just £136 from Chancellor’s measures
While these were positive steps to help protect households from the cost-of-living crisis, Resolution Foundation’s assessment of the measures revealed that only £1 in every £3 will go to the bottom half of the income distribution.
Torsten Bell, chief executive, said: “If we consider these measures alongside previously announced support for energy bills and (larger) tax rises, the treasury is only offering limited support to household budgets next year: an average boost of £110.
“The typical working-age household faces an income fall of 4% or £1,100 in 2022/23. But the greatest falls will be felt by the poorest quarter of households who are set to see their real incomes drop by 6% as benefits fail to keep pace with the rising prices.
“As a result, a further 1.3 million people will fall into absolute poverty next year, including 500,000 children – the first time Britain has seen such a rise in poverty outside of recessions.”
The critique added there is significant damage to real wages, which are projected to fall 3.6% over the course of 2022.
“The slow recovery from this fall, on the back of the disastrous wage stagnation of the past decade, means that by 2027, real wages are set to have grown by just £18 a week since the financial crisis, compared to £240 a week if they had grown in line with the pre-financial crisis trend,” Bell said.
‘Gains wiped out by previous announced tax rises’
He added that incomes are on course to be lower at the next election (2024/25) than they were at the last (2019/20), with a typical non-pensioner income projected to be 2% lower.
“Such an outcome would make this the worst parliament on record for living standards growth”, he said.
Meanwhile, regarding the 1p cut in the basic rate of income tax for April 2024 which is set to save the average earner £243 a year, Bell said: “The gains of this and the lasting impact of a higher National Insurance threshold are more than wiped out by previously announced tax rises: the Health and Care Levy combined with the freeze to Income Tax thresholds.”
Bell explained that in 2024/25, when the income tax cut comes into effect, 27 million out of the 31 million people in work will pay more Income Tax and NI as a result of personal tax changes announced by Rishi Sunak.
“Households in the middle of the income distribution will on average be £535 a year worse off, while losses among the richest ten percent will average over £2,000. Cutting the basic Income Tax rate while raising that for National Insurance (via the Health and Care Levy) also makes little sense. It widens the gaps in marginal tax rates paid by many working-age people versus those in retirement, or workers versus landlords, on the same level of income.”
He concludes: “This Spring Statement saw the chancellor prioritise rebuilding his tax-cutting credentials over supporting the low-to-middle income households who will be hardest hit from the surging cost of living, but while also leaving himself fiscal flexibility in the years ahead. The package of measures announced offered some immediate support to households and laid the ground for a 2024 election.”