Chancellor’s Spring Statement won’t help Welsh households worst hit by cost of living crisis says expert study
Chancellor Rishi Sunak’s Spring Statement won’t help the Welsh households worst hit by cost of living crisis, an expert study has shown.
Cardiff University’s Wales Governance Centre said the statement failed to provide targeted support for the worst-hit households in Wales or to shield public services from rising inflation.
Researchers from the Wales Fiscal Analysis project published their analysis of the Chancellor’s announcements and their implications for Wales today after crunching the numbers overnight.
The main finding was that while the Chancellor announced tax cuts to provide broad support to households across the income distribution, the measures did not however target the worst-hit, lower-income Welsh households.
Those households would benefit less from the fuel duty cut and the increase in the national insurance threshold, they said.
Co-author of the briefing, Cian Siôn, commented: “In the face of price rises and a real reduction in incomes, the Chancellor was under considerable pressure to announce further measures to assist households with the cost of living.
“But by opting for tax cuts rather than more targeted measures, there was little in the way of additional support for those most affected by the cost-of-living crisis. The failure to uprate benefits by inflation this year is particularly disappointing.”
Other findings by the Wales Governance Centre included:
- A combination of tax policy changes and energy price increases will leave average Welsh households £315 a year worse off, even after the measures announced yesterday and in February have been applied.
- Welsh households in the poorest income decile will see the largest hit to their finances, exacerbated by a real terms reduction of more than 4% in working-age benefits, pension credit and the state pension.
- Rising inflation has wiped out 16% of the planned real increase in Welsh Government day-to-day spending by 2024-25, with no new funding announced. This will squeeze public services and public sector workers during a time of huge demand pressures in the aftermath of Covid-19.
There was however some better news for the Welsh Government in the OBR’s latest assessment of devolved taxes. Forecast growth in devolved revenues were once again revised upwards, suggesting the Welsh Government may have an additional £175 million in 2024-25 relative to what it currently plans to spend.
Including projected reconciliations for forecast errors in previous years, the net effect of tax devolution could reach nearly half a billion pounds by 2024-25.
Guto Ifan from the Wales Governance Centre added: “The Welsh Government’s block grant settlement announced in October now looks considerably less generous due to rising inflation.
“The inflationary pressures on public services will be influenced by pay settlements determined later this year – holding down nominal pay awards could have a detrimental impact on recruitment and retention of staff during the Covid-19 recovery.
“The outlook for devolved revenues continues to improve, which could provide a welcome boost to the Welsh Government’s spending power over coming years. However, these projections are based on forecasts, which are inherently uncertain.”
Yesterday Wales’ Finance Minister Rebecca Evans has said the Chancellor Rishi Sunak’s Spring Statement had let down people struggling with the rising costs of living.
Households across the UK are facing a significant squeeze in living standards as inflation rises. April will see more pressure on household budgets, with energy bills and National Insurance contributions both rising.
Rishi Sunak softened the blow by announcing that the threshold that earners pay national insurance will be raised to the same level, £12,570, as they begin to pay income tax.
He also announced a one-year 5p cut in fuel duty, to take effect from today.
But the Welsh Government had called for measures including increasing welfare benefits, a windfall tax on big energy companies, and introducing a low income energy tariff to better target support to lower-income households.
Despite the OBR almost doubling its inflation forecast to 7.4% from 4% for this year, the Chancellor limited the uplift in benefits to just 3.1% – after a below inflation increase of 0.5% last year.
Rebecca Evans, Minister for Finance and Local Government, said: “People will be right to feel let down by today’s threadbare statement. Bills are rising rapidly and disposable income is falling, but there is not enough in today’s statement that recognises the struggle many are facing.
“It’s an ideological, regressive statement from the Chancellor that lacks practical measures to help those who need help the most – there is nothing for those who cannot work and those on lower incomes.
“The UK Government has squandered the opportunity to provide meaningful support. It exposes an out-of-touch Chancellor and exacerbates the fairness gap running through Westminster’s lacklustre approach to the cost of living crisis.”
Wales First Minister Mark Drakeford added: “This Spring Statement lets down people already struggling with the rising cost of living. Bills are rising rapidly and disposable income is falling. UK Government has wasted the opportunity to provide meaningful support and practical measures to help those who need it the most.”
But the UK Government’s Secretary of State for Wales Simon Hart said the announcement “tackles the huge challenges facing Wales and the rest of the UK, with a package of support to ease the pressures everyone is experiencing around the rising cost of living”.
“The war in Ukraine has now brought new challenges, but today’s measures show that we are continuing to build a stronger and more secure economy for the whole of the United Kingdom.”
The Welsh Liberal Democrats accused Welsh Conservative MPs and MSs of “utterly failing” to make their voices heard in government.
Welsh Liberal Democrat Leader Jane Dodds MS said the announcement contained nothing of significance to help people in rural areas deal with the cost of living crisis, particularly the “extortionate costs” of heating faced by those living in rural Wales.
“Today the Chancellor has given rural regions nothing to help them cope with the crisis my residents are facing in being able to heat their homes,” she said.
“Welsh Conservative MPs are clearly failing to influence the Chancellor despite almost exclusively representing rural parts of Wales.
“The cut to fuel duty is welcome, but only will take between £2-£3 off filling your car. It alone does not rise to the occasion. What we would have liked to have seen was the rural fuel duty relief scheme expanded to parts of Wales like Ceredigion, Powys and Gwynedd. We have been calling for this since 2015, but have been blocked by the Conservatives at every point.
“More importantly, the Chancellor has refused to introduce a windfall tax on oil and gas companies that we would want to use to double and expand the warm homes discount. Oil and gas companies are making record-breaking profits while the rest of us are suffering.
“This is especially true in Mid & West Wales where in some counties up to 23% of households live in fuel poverty.
“Finally, the Chancellor made no announcement to protect those reliant on heating oil and LPG. With large numbers of households across rural Wales off the national gas grid, the bare minimum the Government could have announced was a plan to include oil and LPG into the energy price cap or to implement an automatic fuel duty rebate if the price of heating oil reaches over certain levels.
“This spring statement has made it abundantly clear that Welsh Conservative MPs are failing to make their rural constituents’ voices heard in an increasingly London and southeast centric Government.”
Support our Nation today
For the price of a cup of coffee a month you can help us create an independent, not-for-profit, national news service for the people of Wales, by the people of Wales.