Cost of living crisis: Sunak engages in ‘serious redistribution’ to help Britain’s poorest

Analysts say Rishi Sunak has done some “severe redistribution from have to haves” in his latest package of measures to address cost-of-living crisis – which endangers him amid criticism of spring statement The ability to establish yourself as a low-tax chancellor.

Here, the Financial Times examines how the new support will help different families.

To what extent will this fill the gap in household finances?

£15bn package – almost doubled vitality The support – announced earlier this year – will no doubt have a big impact. Almost all 8 million households receiving means-tested benefits will receive £1,200 – a one-time payment of £650 to be delivered in two instalments, along with a £400 discount on energy bills and £150 for all households, Sunak said Many council tax refunds have been given.

That means far more help for the poorest than many expected, to offset an expected increase of more than £1,500 in average household energy bills for the year to October, as well as wider price increases.

Torsten Bell, director of the Resolution Foundation think tank, said the scheme was “big and very popular”, while Claire Moriarty of the charity Citizen Advice said it was “millions of people trying to keep their heads up.” life raft “above the water”.

Helen Barnard, head of research and policy at charity Pro Bono Economics, said it was also well-structured, with the first lump sum payments due to hit people’s bank accounts in July and additional support provided automatically To pensioners and disabled people or they might fall through the cracks.

Chancellor made it clear that this year’s one-off support will be on top of next year’s welfare boost – when they will finally catch up inflationThe Treasury Department has also confirmed that it will be tax-free and will not count towards the cap on the total benefits families can receive.

How targeted are these measures?

Overall, the measures announced Thursday represent a rebalancing of help to low-income households. Sunak was distressed by criticism that his spring statement in March (for staff help) ignored the poorest people in society.

The Resolution Foundation says two-thirds of the new cash will go to the poorest half of households, while the overall impact of tax changes and support coming into effect this year will be “more progressive”, with an average benefit of £1,195 for the poorest fifth of households , while the top quintile lost an average of £456.

“Mr Sunak is doing some serious redistribution from rich to poor – albeit against a backdrop of rising inequality,” said Paul Johnson, director of the Institute for Fiscal Studies think tank.

After taking into account tax changes and all government support, workers with a median income of around £29,000 now expect their standard of living to remain roughly the same this year, while full-time minimum wage workers will do better at around £340, the IFS said.

However, the decision to provide support through flat-rate payments rather than increased benefits will help some families more than others. The IFS points out that some middle-income earners who have just qualified for the benefit will receive the full £650, while others in very similar circumstances will not. Single adults will also get more and families get less if benefits are raised in April.

The doubling of discounts on energy bills, which are now grants rather than loans, means Sunak is giving out a lot of money to some households that don’t need it to help middle-income people in a more precarious position. The £300 payment to pensioners will also benefit some 3.7 million households in the top half of the income distribution.

Does this solve the cost of living problem?

The charity said that while the measures would reduce the immediate squeeze on household finances, their one-off nature would do little to address holes in the UK’s long-term welfare safety net.

Regardless of the political calculations behind Sunak’s change of tactics, “real people” will get “real help,” Barnard said. However, once the immediate crisis passes, there will be a need to “strengthen the underlying systems”. . . thereby reducing the number of people who have been on the brink of crisis”.

Why did Sunak fund the package with windfall profits tax?

According to senior Conservative Party officials, Sunak and Prime Minister Boris Johnson have concluded that the dramatic U-turn of the windfall tax is politically inevitable. Private opinion polls in Downing Street have found it to be very popular with voters.

“A Conservative government wouldn’t do an unpredictable tax raid like this,” said an ally of Johnson. “We have set a high bar for this – there is a lot of internal opposition.” Many cabinet ministers want tax cuts, not tax hikes.

Johnson is reluctant to proceed with a surprise fiscal U-turn if only £2bn can be raised, as Labour has proposed. Sunak said he could raise £5bn this year from oil and gas companies and power companies could raise another £3-4bn.

“It’s a game changer,” Johnson’s ally said. “If you’re going to suffer, the gain has to be worth it.” Sunak also argued that it would be fiscally right to partially fund new spending, rather than fuel inflation by borrowing more.

BP chief executive Bernard Looney said his company’s investment plans would not be affected by a windfall tax, according to Johnson’s allies, also frustrating the prime minister.

Sunak is now under intense pressure to start tax cuts in the autumn budget. “One day the low-tax chancellor will actually start cutting taxes instead of raising them,” a Conservative official said.

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