Spring Statement Looked At By Fraser of Allender Institute

24th March 2022

This was not the set of measures that many people had expected or hoped for. 2022 is set to see the biggest single-year fall in real household disposable income since records began in the late 1950s, according to the OBR.

The main policy measures announced today for 2022 were the 5p fuel duty cut, which will make little difference to the households most exposed to the crisis; and the rise in the NICs thresholds, which ensures that the government's tax rise will not add to the cost of living burden this year for most earners.

These policies of course have to be seen alongside February's £9bn package - which included the £150 grants to households in council tax bands A-D, and a £200 reduction in energy bills in 2022 (repayable in future years).

In combination, the announcements in February and March equate to some £17.6bn of support for household incomes in 2022/23. This includes £3bn on grants via council tax, £2.4bn through fuel duty cuts, £6.3bn through raising the primary NICs threshold, and £6bn of direct support for energy bills which is recouped in the subsequent five years.

On one level this is a generous package of support. But it has to be seen within the context of an substantial and sudden shock to living standards. The government is in a better position to smooth the impacts of this shock that individual households, particularly those on the lowest incomes.

But across the two announcements, there has been no targeted support to the lowest income households. As a result, benefits are set to rise 3.1% in April, against a forecast inflation rate in 2022 of 7.4% - a real terms cut in benefits of 4% (or more, when we factor in low income households higher proportionate spending on energy and food).

This outcome could have been avoided relatively costlessly by adapting standard benefit uprating rules. There is certainly no sense in which such a measure could not have been ‘afforded', even within the Chancellor's own fiscal rules.

There was also no extra spending on public services. This means that the cash allocations set out in last year’s Spending Review are now worth less in real terms. Public departments face rising costs of energy too, and meeting these costs within existing budgets will mean less for other things.

Rishi Sunak is rapidly repainting the image he carved for himself during the pandemic. Gone is the priority to ‘do whatever it takes’. It is replaced by a reiteration of his desire to meet his own fiscal rules, whilst pencilling in a flagship cut to income tax. The political calculation is that the promise of tax cuts and fiscal prudence will appeal to the core elements of the electoral base. But this may yet prove a risky strategy. In the meantime, 2022 is set to be an extremely tough year for many households.

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