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Think tanks say chancellor must act to cushion impact of inflation on poorest in spring statement

Foreign Minister Rishi Sunak is facing demands from economists across the political spectrum to increase benefits and the state pension by about 8% in his spring statement next week, to help ease the worst cost-of-living crisis in decades.

A Resolution Foundation report on the state of the economy on Monday shows that only such drastic action will allow millions of low-income people to maintain their standard of living at current levels.

Economists at other leading think tanks, including the right-leaning Center for Policy Studies, are also urging the chancellor to raise benefits well above the 3.1% currently planned. This figure was determined last September by the inflation rate at the time.

While the Bank of England has forecast inflation to top 7% next month, the war in Ukraine and its effect on energy and food prices has led many economists to forecast even more pain, with price rises of 8% that will affect the poorest. most homes.

Resolution Foundation’s new model shows that a single parent living in rented housing with a child, working 20 hours a week supplemented by universal credit, will see the effects of all the recently announced government help with energy bills and the benefits more than eliminated. by the rising cost of living, leaving them hundreds of pounds a year worse off.

He says, however, that if benefits were increased by an additional 5%, bringing the total increase to the staggering 8.1% level, the difference would be made up and the standard of living for many low-income earners would not decline.

The think tank last week predicted that typical household income would fall by 4% in 2022-23, a cut of £1,000 per household, the biggest annual fall in income since the mid-1970s.

Under current plans, the state pension will also increase by just 3.1%, which means an increase of £5.55 per week. If inflation rises to 7.25% in April, as the Bank of England predicts, this would amount to a cut in real terms of more than £7 per week.

A recent analysis by the Joseph Rowntree Foundation found that increasing benefits by 3.1% at a time of skyrocketing inflation would mean that 9 million low-income households eligible for means-tested benefits, both in and out of work, they would experience an average in real terms cut of £500 a year.

The foundation calls on the government to raise benefits in line with the Bank of England’s February 2022 Monetary Policy Report forecast of 7% inflation for April as an immediate first step to help keep up with the increase in the cost of living.

Demands to help those receiving state benefits and pensions is another headache for Sunak, who is already under intense pressure from Conservative MPs to drop or postpone a 1.25 percentage point increase in national insurance due to come into effect. valid in April. The Treasury has indicated it is unwilling to advance the increase, which was intended to pay for the NHS and improvements in social care.

If Sunak balks at this, most Conservatives expect him to provide extra help for low-income families to help them cope with energy and fuel costs.

A food bank: Rising costs are ‘swallowing up what’s left of people’s budgets’. Photographer: Graeme Robertson/The Guardian

Clare Moriarty, executive director of Citizens Advice, said: Rising costs are simply eating up what’s left of people’s budgets. One of our consultants spoke to a parent last week that he had to choose between giving his children a hot bath at bedtime or turning on the heat for an hour while they got ready for school.

“These strong options will only get worse starting in April when energy bills go back up.

“The government must do more. We urge you to immediately increase benefits in line with inflation to help people keep up with costs. And when bills skyrocket further in the fall, they need to bring a support package to prevent more households from being pushed into hardship.”

James Heywood, head of welfare and opportunity at the Center for Policy Studies, said benefits should rise this year by more than the forecast 3.1% and that the increase should reverse next year. “Benefits are updated annually based on the September inflation measure, but ministers should consider raising benefits in April to cushion the impact of the cost-of-living crisis on poorer households. This should then be offset by reducing next year’s increases. In this way, the government can help smooth the edges of rising costs of living, without incurring sustained pressure on the public purse.”


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