The Week, 27 May 2022
This week saw a Budget in all but name when on Thursday the Chancellor announced a package of fiscal measures to help people with the cost of living crisis. He began by asserting, rightly, that “no Government can solve every problem”, but acknowledged that since his last intervention the situation has “changed”.
Earlier this month the Bank of England warned that rising energy bills could push inflation above 10%, and lead to a recession in the fourth quarter of this year, and Ofgem warned that the energy price cap is expected to rise to £2,800 in October. This represents a 119% increase from the beginning of the year, leaving typical households roughly £1,500 worse off.
This is especially tough on lower income households, who spend almost twice as much, as a share of expenditure, on gas and electricity bills. A report by the Resolution Foundation prior to the statement estimated that 2 million lower income households were on course to be in “severe fuel stress” this Winter, defined as spending more than £1 in every £5 on energy.
We at Reform were critical of the Spring Statement back in March for being insufficiently targeted at the poorest households. This time around, the Government deserves credit for correcting this — as graphs of the measures’ distributional impact show. It’s a serious and well-designed package of support that will make a real difference to millions of households.
First, there is a £650 one-off payment to everyone on means-tested benefits, paid in two instalments: the first in July and the second in Autumn. This is sensible — splitting out the payments will help with budgeting and ensure households receive an extra injection of cash that coincides with the energy price hike in October. Importantly the payment is excluded from the benefit cap. For comparison, immediately uprating benefits by 9% would be worth, on average, only £530.
It is worth noting, however, that the flat payment does not take into account different household sizes — the value is much greater for a single person than for a family. However, it is administratively straightforward and avoids delays (which could take months) of trying to uprate both UC and legacy benefits.
There was also welcome confirmation that, when benefits are uprated next year, it will be by this September’s CPI, expected to be between 9% and 10%. This means that if inflation starts to fall again next year, those on means-tested benefits will benefit from additional support for most of 2023: addressing the criticism that the Chancellor’s statement is strictly short-term in scope.
Next up, there are specific one-off payments of £150 for those in receipt of extra-costs disability payments and £300 for those who receive Winter Fuel Payment (effectively, everyone on the State Pension). Another well-targeted move, as both groups are above-average consumers of energy (for example, due to requiring energy-intensive equipment, or spending more time indoors), with an especially difficult year ahead.
Whilst it is true that channeling £300 of support through the Winter Fuel Payment will benefit a number of wealthier pensioners (according to the ONS, 1 in 5 households in which the main occupant is aged 65 or above has wealth of more than £1 million), who may not need the money, we also know that uptake of Pension Credit is much lower than it should be. Targeting support in this way helps to prevent struggling older households from ‘falling between the gaps’.
Less discussed, but also important, is another £500 million injection to the Household Support Fund, further extending local authorities’ ability to identify and provide discretionary support to vulnerable households.
Finally, the £200 ‘loan’ offered to all households through the Energy Bills Support Scheme back in April has doubled, and been turned into a grant. This will help the ‘just-about-managing’ not covered by the other payments — albeit in a less targeted way.
Accompanying this major package of support is the much-rumoured levy on the profits of energy companies, which is expected to raise at least £5 billion. The levy will place a 25% surcharge on the “extraordinary profits” made by the oil and gas sector this year, and will be phased out when profits return to “historically normal levels”, or in December 2025, once the levy’s ‘sunset clause’ expires. It also includes an important and generous 80% “investment allowance”, granting tax relief to companies that invest in UK oil and gas extraction (and therefore UK boost energy security).
All in all we very much welcome this non-Budget Budget.
Onto the recommended reads…
For those wondering how yesterday’s measures are likely to play out amongst voters in the Red Wall, a new study by Jane Green and Roosmarijn de Geus for the Nuffield Elections Unit is worth a read. It finds that depicting Conservative voters in the Red Wall as “economically insecure” is largely a red herring — and instead, Conservatives across the country are united by their relative economic security. Conversely, economic insecurity is as strongly correlated with voting Labour as someone’s “Brexit vote, immigration preferences or cultural values”. The study is a reminder, as journalist Stephen Bush points out, that “in many ways, voting behaviour [still] falls down to one thing, ‘the economy, stupid’”.
Relatedly our next read, by the Work Foundation, tries to quantify insecure work across three key dimensions: contractual (e.g. involuntary part-time/temporary work); financial (e.g. low pay); and workers’ rights (e.g. access to tenure/contribution-based entitlements, like statutory sick pay). It argues that, although the prevalence of insecure work has been stable over the last two decades, it has risen in certain parts of the economy, and amongst specific groups of workers. According to the report’s “Insecure Work Index”, young workers (aged 16-24) are 2.5 times more likely than older groups to experience “severe insecurity”, whilst over a third of workers in agriculture, distribution and hospitality experienced severe insecurity in 2021.
Finally, a more light-hearted piece from the The Conversation about the economics of the two teams in the Champions League Final this weekend. First is Liverpool which, despite famously strong ties to its community in the North West, in fact belongs to American parent company, Fenway Sports Group, that also owns the Boston Red Sox and the National Hockey League team, the Pittsburgh Penguins. Real Madrid, on the other hand, is owned by its members, who can vote club officials into and out of office. However, the club still embraces foreign investment, with connections to Qiddya, an entertainment mega-complex being built in Saudi Arabia, and the Chinese CITIC Bank, which issues Real Madrid-branded credit cards. The fans might be the ‘12th man’ on Saturday, then, but the result will determine how happy the 13th, big business is, the day after.