Economists and poverty campaigners have been warning for months that low-income families and people with disabilities will find themselves in increasingly dire financial straits as inflation hits its highest level in 40 years. But for months, a government mired in scandal has chosen to ignore their plight, implementing cuts to Universal Credit and crafting financial support packages that mostly go to the wealthiest households. Labor calls for a windfall tax on energy companies to fund more financial aid have gone unheeded.
Finally, the Chancellor gave in and corrected his course. Last week, Rishi Sunak announced an additional £15billion one-off financial support to households, funded in part by a one-off £5billion levy on energy companies. It’s come far too late, causing unnecessary hardship and stress on low-income families, but it’s a more generous package than anything that’s come before it and it’s better, if imperfectly, targeted. about the people who need the most help.
All energy bill payers will now receive a £400 grant instead of the £200 refundable credit originally announced by the Chancellor. In addition, there will be a one-time payment of £650 for all of the 8 million households who receive means-tested benefits, with an additional £150 and £300 available for disabled and pensioners.
Analysis by the Resolution Foundation found that six out of 10 pounds of the Chancellor’s previous two cost-of-living support packages went to households in the top half of the income distribution. This new set of measures helps to remedy that: two-thirds of the £15billion goes to households in the bottom half of the distribution. Given the unbearable choices currently facing some low-income parents – food banks have warned that some children are contracting food poisoning because their parents turn off fridges to try to save on energy bills and go to school with dirty clothes – this package should have been even more biased in favor of those for whom inflation is the source of the most existential of crises.
There are, however, some problems with the way these measures are implemented. By refusing to introduce this scale of support for so long, the Chancellor has not only condemned some families to hardship and uncertainty longer than necessary, but has also missed the opportunity to provide it by increasing benefits more generously (benefits will have been reduced by around 5% in real terms this year due to the lag in inflation). Using a lump sum payment to offset this reduction in benefits is a blunt tool that has the disadvantage of penalizing low-income families with children, who have higher costs.
It further undermines the principle firmly established during the Labor years that in an economy with very high housing costs and too many low-paying jobs that do not pay enough to support a family, it is right for the government to financially support low-wage parents. . A significant number of families, especially with children who live in parts of the country where housing is more expensive, will not benefit from the lump sum payment, as it would put them over the benefit ceiling, which was not increased in function of inflation. .
The other fundamental problem with these measures is that it is only a one-off payment to compensate less well-off households for the rising cost of living this year, notwithstanding the point above. Many families were already in dire financial straits before this year due to cumulative cuts in tax credits and benefits introduced by successive Tory chancellors since 2010, even as they handed out costly tax cuts that benefited disproportionately to the wealthiest households. Families with children have borne the brunt of these cuts, with a few thousand pounds a year worse off in 2020 than they would have been entitled to in 2010. A one-off payment doesn’t even begin to fight this structural erosion of the financial safety net for low-income parents, which has contributed to a long-term decline in living standards that has seen an increasing number of parents rely on food banks to feed their children in one of the richest countries in the world.
Beyond this immediate crisis, the country also needs an economic growth strategy that reduces regional inequalities that will be aggravated by Brexit and tackles the UK’s productivity crisis, which is holding back real wages. , as well as a program of public investment in housing construction to lower housing costs for tenants. But it is a government that is rocked from scandal to scandal, led by a Prime Minister who clings to power despite being fined by the police for breaking the law during a national emergency in order to socialise. In the past week Boris Johnson has rewritten the ministerial code to water down his sanctions and in doing so codified the disintegration of integrity and probity over which he presided.
The Emergency Support Scheme is better than many expected given the Chancellor’s rhetoric in recent weeks. But it is not a government able or willing to address the structural causes of the unacceptable levels of child poverty that are ravaging our country.