Fears over growth in absolute poverty after Spring Statement

Absolute poverty is expected to rise by 1.3 million people next year, while only one-in-eight workers will see their tax bills fall by the end of the parliament, according to a Resolution Foundation analysis of the Chancellor’s Spring Statement.

It says the scale and distribution of the cost of living squeeze and the lack of support for low-income families in the Spring Statement means that a further 1.3 million people are set to fall into absolute poverty next year, including 500,000 children.

The think tank also estimates that typical working-age household incomes are to set to fall by 4 per cent in real-terms next year (2022-23), a loss of £1,100, while the largest falls will be among the poorest quarter of households where incomes are set to fall by 6 per cent.

And it adds that only those earning between £49,100 and £50,300 will pay less income tax in 2024-25, and only those earning between £11,000 and £13,500 will pay less tax and National Insurance (NI). Of the 31 million people in work, around 27 million (seven-in-eight workers) will pay more in income tax and NI in 2024-25, it says.

It also calculates that:

• average weekly earnings are on course to rise by just £18 a week between 2008 and 2027, compared to £240 a week had they continued on their pre-financial crisis path. It says this lost growth is equivalent to a £11,500 annual wage loss for the average worker.
• typical household incomes are forecast to fall by 2 per cent across the parliament as a whole (2019-20 to 2024-25)

Torsten Bell, Chief Executive of the Resolution Foundation, said: “The big picture is that Rishi Sunak has prioritised rebuilding his tax-cutting credentials over supporting the low-to-middle income households who will be hardest hit from the surging cost of living, while also leaving himself fiscal flexibility in the years ahead. Whether that will be sustainable in the face of huge income falls to come remains to be seen.”

Meanwhile, Paul Johnson, director of the Institute for Fiscal Studies, accused the Chancellor of being “something of a fiscal illusionist”. He said the combination of tax cuts and rebates in the Spring Statement “is not enough to offset the fall in real earnings that we expect to see”.

The IFS calculates that a median earner, on around £27,500 a year will be about £360 worse off in the next financial year than in the current year. Someone earning around £40,000 will be getting on for £800 worse off.

And he criticised the Government’s decision to do nothing for those dependent on benefits. He said: “The flat rate council tax rebate will benefit the large majority to the tune of £150 and the energy bill rebate will provide £200 in the short term. But that will still not be enough to offset the real fall in the value of benefits for most such households over the coming year. The 3.1% increase needs to be set against Office for Budget Responsibility expectations of inflation averaging nearly 8% over the year. And the inflation rate experienced by poorer households will be even higher than that. While benefit levels will catch up with inflation next year, that will be of little comfort to those budgeting week to week or to those who are unemployed this year but not next year. It is hard to understand the lack of action on this front.”

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