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Blog: Our new Chancellor is shaping a changed response to tough times

17 Nov 2022

By Professor Donald Hirsch

Behind the detail of the Autumn Statement, we can see some underlying shifts in the government’s attitude to providing financial help for those who need it. It’s a shame it’s taken the worst living standards crisis in memory and a spectacularly ill-judged mini-budget to get to this point, but there’s much in Jeremy Hunt’s approach to be welcomed.

What do you do when average real incomes are falling and public borrowing is being strained to the limit? In the early 2010s, the policy was clear. Introduce drastic cuts in public spending. Keep increases in the minimum wage to below inflation. Cap total family benefit entitlements and uprate benefits more slowly than inflation for the first time in post-war history, saying that it would be morally wrong to maintain living standards for people not working when hard-working people were seeing their real incomes fall.

This week’s autumn statement does pretty much the reverse. It increases minimum wages by 10% when general pay is rising by 5-6%. It fully uprates pensions and working age benefits in line with inflation and focuses cost of living support on people receiving means-tested support. Most strikingly, it increases the benefit cap in line with the 10% rise in prices and in benefits.

This benefit-cap increase is incredibly important to the worst-off families. Rising prices and hence benefit levels would otherwise be drawing more and more families into the scope of the cap. If the freeze in the cap had been maintained, any family subject to the cap would have been denied any uprating and hence become a further 10% worse off. It remains a disgrace that the cap has been frozen since its level was sharply reduced in 2016, and neither that cut nor the real-terms fall in the cap up to 2022 is being reversed. Yet the decision to uprate it now is a strong signal that the present Chancellor does not plan to punish families receiving benefits as being undeserving of proper protection from the state when public finances are tight.

This does not mean that the Chancellor focused all his help on the worst off. His reversal of his earlier announcement that the energy price guarantee would be set at a market level in April, albeit still raising it by £500 to a fixed £3000 for the average household, ploughs more billions into a policy that will contain bills for us all. If he had let the price guarantee rise to market levels, which had been forecast to be £4000-plus, an adequate cost of living package would have been close to impossible. It would have required much larger payments which, if focused on household on means-tested support, would have created a massive cliff-edge for those with incomes just above the means-tested level. Millions of families close to the middle of the income distribution would have had completely unaffordable bills.

As it is, neither those at the bottom nor those in the middle will find things easy anytime soon. A year from now, going into next winter, those getting means-tested support will have energy bills on average £500 higher than now, and cost of living support £300 lower than this year (£900, rather than £1200 including this year’s council tax rebate). This is a further step backwards from a situation which I have estimated already leaves an out-of-work family £1400 behind where they were in 2021. And those with incomes too high for means-tested benefits will have to foot bills two and a half times as high as they were last year, and without the £400 reduction in those bills that they are receiving this winter.

So a budget that has had to find a delicate balance between supporting families, avoiding drastic cuts in public services and reassuring the markets will limit rather than reverse the painful fallout of the cost of living crisis. But compared with a decade ago, the Chancellor’s attitude to state help for those in need has changed dramatically, discarding the rhetoric of the austerity years. After the instability of recent weeks, we can only hope that this new stance becomes entrenched, and creates the foundation on which to build a more adequate benefits system – something long overdue.