The Observer view on Rishi Sunak’s cost of living package

·4 min read
<span>Photograph: Andy Buchanan/PA</span>
Photograph: Andy Buchanan/PA

Economists and poverty campaigners have for months been warning that low-income families and disabled people would be left in increasingly dire financial straits as a result of inflation hitting 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 drawing up packages of financial support that mostly go to better-off households. Labour’s calls for a windfall tax on energy companies to fund more financial relief went unheeded.

At last, the chancellor has given in and corrected course. Last week, Rishi Sunak announced an additional £15bn of one-off financial support for households, funded in part by a £5bn windfall tax on energy companies. It has come much too late, causing unnecessary hardship and stress for low-income families, but it is a more generous package than anything that has preceded it and is better, albeit imperfectly, targeted at people who are most in need of support.

All energy bill payers will now receive a grant of £400 rather than the £200 repayable credit that was originally announced by the chancellor. In addition, there will be a one-off £650 payment for all of the 8 million households who are on means-tested benefits, with an additional £150 and £300 available for disabled individuals and pensioners.

Analysis from the Resolution Foundation has highlighted that six out of 10 pounds of the chancellor’s previous two packages of cost of living support went to households in the top half of the income distribution. This new set of measures helps to redress this: two-thirds of the £15bn goes to households in the bottom half of the distribution. Given the unbearable choices some parents on low incomes now face – food banks have warned some children are getting food poisoning as a result of parents switching off fridges to try to save on energy bills and are going into school in dirty clothes – this package should have been even more skewed towards those for whom inflation is causing the most existential of crises.

There are, however, some issues with the way these measures are being implemented. By resisting introducing this scale of support for so long, the chancellor not only consigned some families to hardship and uncertainty for longer than was needed, he also missed the chance to provide it by uprating benefits more generously (benefits will have been cut by around 5% in real terms this year as a result of not keeping pace with inflation). Using a flat-rate payment to compensate for this benefit cut is a blunt tool that has the disadvantage of penalising low-income families with children, who have higher costs.

This further undermines the principle firmly established during the Labour years that in an economy with very high housing costs, and too many low-paid jobs that do not pay enough to support a family, it is right that the government financially supports low-paid parents. A significant number of families, particularly with children who live in areas of the country with more expensive housing, will miss out on the flat-rate payment altogether because it would take them over the benefit cap, which has not been increased in line with inflation.

The other fundamental problem with these measures is that they are simply a one-off payment to compensate the least affluent households for the rising cost of living this year, notwithstanding the above point. Many families were already in very difficult financial circumstances before this year as a result of cumulative cuts to tax credits and benefits introduced by successive Conservative chancellors since 2010, even as they were handing out expensive tax cuts that disproportionately benefited more affluent households. Families with children have borne the burden of these cuts, with some thousands of pounds a year worse off in 2020 compared with what support they would have been eligible for in 2010. A one-off payment does not even begin to tackle this structural erosion of the financial safety net for low-paid parents, which has contributed to a long-term decline in living standards that has seen increasing numbers of parents relying 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 the regional inequalities that will be made worse by Brexit and addresses the UK’s productivity crisis, which is holding down real wages, as well as a programme of public investment in housebuilding to drive down housing costs for renters. But this is a government that is being buffeted from scandal to scandal, headed by a prime minister who clings on to office despite being fined by the police for breaking the law during a national emergency in order to socialise. In this last week, Boris Johnson has rewritten the ministerial code to water down its sanctions and in doing so has codified the disintegration of integrity and probity over which he has presided.

The emergency support package is better than many expected given the chancellor’s rhetoric in recent weeks. But this is not a government that is either capable of or inclined towards addressing the structural causes of the unacceptable levels of child poverty that blight our nation.

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