By Charlie Kimber
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Sunak’s spring statement tinkers as cost of living crisis deepens

Chancellor’s spring statement brings no thaw to cost of living crisis facing working class people
Issue 2798
A picture of chancellor Rishi Sunak with 24 sheets of white paper in his office to illustrate an article on the spring statement

24 pages, nothing for working class people in the spring statement (Pic: HM Treasury on Flickr)

Multi-millionaire chancellor Rishi Sunak utterly failed to defend working class people in his spring statement on Wednesday. He made the political choice to let oil and gas giants keep making super profits while abandoning workers and the poor to hardship and poverty. 

Hours before Sunak made his statement, official figures showed the RPI rate of inflation—the most accurate one—had risen to 8.2 percent. If your pay or benefits are going up less than that, then you are facing a cut.

Jack Leslie, senior economist at the Resolution Foundation, said February’s figures were “a foretaste of the huge income squeeze coming”, which would be a “complete disaster for living standards”.

The tame Office for Budget Responsibility issued a stark document alongside the spring statement. It warned, “The rise in inflation to a 40-year high this year is expected to reduce real household disposable incomes by 2.2 per cent in 2022-23.” This is “the biggest fall in living standards in any single financial year since ONS records began in 1956-57.”

Facing a hurricane threatening to tear away at people’s living standards, Sunak did the equivalent of putting up a flimsy wind-break.  He said he would cut the basic rate of income tax from 20 percent to 19 percent—but not until 2024. He claimed that was a £5 billion tax cut for more than 30 million people.

However, Sunak didn’t say that high inflation means the government is set to take billions of pounds from workers because of last year’s freeze in the income tax threshold. That will reach £21 billion a year by 2025.

And even something seemingly small, such as changes to student loan repayment rates, are bigger than the tax cut. Chris Giles, the economics editor of the Financial Times, tweeted, “Student loan changes increase income taxes more than the tax cut reduces them. Simple redistribution from graduates to the richest.”

In any case, 42 percent of adults in Britain pay no income tax because their taxable income is less than the tax free allowance of £12,570. Sunak raised the point at which workers will start paying national insurance to £12,570 a year. But that won’t come into effect until July, while rates go up 1.25 percentage points in April. And it won’t mean all workers pay less.

The OBR conceded, “Net tax cuts announced in this Spring Statement offset around a sixth of the net tax rises introduced by this chancellor.”

There’s no extra money for health, schools or other public services despite huge increases in inflation. That means big real pay cuts for most public sector workers. Government evidence to the teachers’ pay review body asked for just a 3 percent pay “rise”.

There was nothing for people on Universal Credit or the state pension, which are going up by 3.1 percent this month when inflation will be over 8 percent. That’s a big cut in living standards for those on the very lowest incomes.

These measures are just tinkering with an extremely urgent situation. An average £700 increase in annual energy bills, due to come in next week, is expected to be followed by a further £600-£1,000 rise in the autumn. Single parents, pensioners and families which include a disabled person will be hit hardest by these price surges.

At the same time, there are big rises now in food prices, rents, council tax, rail fares and broadband costs. And Sunak did nothing.

Dave Innes, head of economics at the Joseph Rowntree Foundation, a charity, said, “The choices the chancellor has made today won’t deliver any security for those at the sharpest end of this crisis, instead he has abandoned many to the threat of destitution.”

Crucially, Sunak refused to impose a windfall tax on the oil and gas companies that are grabbing tens of billions of pounds in profits as energy prices rise. That’s a straight defence of capitalist priorities.

Labour and the Liberal Democrats have demanded a tax on the energy giants, but only as a one-off payment. And they don’t want the companies taken into democratic public ownership—the only way to hold down bills and plan for a sustainable future. 

The cost of living crisis is a massive challenge to working class people. There has to be resistance. That means pressurising union leaders to fight, backing every example of strikes, protests and occupations and breaking from the idea that Labour will offer any sort of protection.

Five facts to remember
  • Capital gains—profits from buying and selling assets such as second homes, some shares and some businesses—are taxed at the rate 10-28 percent. Wages are taxed at marginal rates of 20 percent to 45 percent. Taxing capital gains at the same rate as earned income and charging national insurance on it too, raises around £25 billion a year. That could take £1,000 off every household’s fuel bill. 
  • Around two-thirds of the £40 billion a year tax relief on pension contributions goes to richer people paying income tax at the rate of 40 percent and 45 percent. By reducing the relief to 20 percent, the basic rate of income tax, the government can raise £10 billion.
  • The wealthiest 10 percent of households in Britain hold 43 percent of all wealth. The bottom 50 percent have only 9 percent. 
  • At least 42 percent of all disposable household income—after taxes and benefits—is in the hands of the richest 20 percent of people. Meanwhile, 7 percent goes to the lowest income 20 percent. All such official tax figures grossly underestimate tax avoidance and fraud.
  • The poorest 10 percent of households pay 47.6 percent of their income in direct and indirect taxes, compared to 33.5 percent by the richest 10 percent of households.

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