Chancellor Rishi Sunak came under fire on Thursday for leaving more than 6m of the UK’s poorest households under threat of a £1,000 cut in their annual income just as unemployment is due to peak next year.
Official forecasts published alongside Mr Sunak’s spending review show the UK faces a long squeeze on living standards following the coronavirus crisis, with the economy set to be 3 per cent smaller and average earnings £1,200 a year lower even in 2025, relative to pre-pandemic expectations.
So far, many low income families have been shielded from the worst of the economic fallout by a temporary £20 uplift in the basic weekly rate of universal credit.
But when the chancellor set out his spending plans on Wednesday, he said nothing about whether this uplift in the welfare benefit would continue after next March, when it is currently set to expire.
“I’m really concerned that families are constantly counting down the days until help is taken away from them . . . Children cannot be living to deadlines,” said Marcus Rashford, the Manchester United footballer whose campaign on child food poverty has already forced the government into two embarrassing U-turns.
“Is the universal credit uplift going to be taken away in April?” he asked Mr Sunak on Twitter.
The chancellor gave no commitment when asked by the BBC on Thursday whether the £20 uplift in universal credit would stay.
“The good news is that support lasts all the way to next spring,” he said. “As we get through this and we have more certainty about the future, we can decide what the best way is to support the economy, businesses and then crucially, people’s jobs and their livelihoods and we’ll make these decisions as we go through.”
Many analysts think that in practice, Mr Sunak will have to keep welfare benefits at their more generous level for longer.
Otherwise, poor households, many of them clustered in constituencies that swung from Labour to the Conservatives at the last general election, would suffer a big income hit just as the labour market was at its weakest, with the Office for Budget Responsibility predicting unemployment will peak at 7.5 per cent in the spring.
“It makes no sense, politically or economically,” said the Resolution Foundation, a think-tank.
Analysis of the OBR forecasts and Mr Sunak’s spending plans by the Resolution Foundation and the Institute for Fiscal Studies, another think-tank, painted a dismal picture of the broader outlook for UK living standards and household finances.
They showed that funding pressures were set to continue in many areas of public services, increasing the likelihood of tax rises once the economy has recovered from the worst of the coronavirus-induced downturn.
“This may not quite be a return to austerity, but for some public services it may not feel much different,” said Paul Johnson, IFS director.
Outside health, education and defence, Whitehall departments would face small real-term cuts in spending after next year, “baking in the cuts already made since 2010”, said the IFS, while local authorities would rely on increases in council tax that would benefit richer areas most.
The IFS added it would be unrealistic for Mr Sunak to stick to his spending plans, because it was like that some coronavirus-related expenditure would remain necessary after next year. There would also be pressure to spend more on both public services and welfare benefits.
This means the UK could be facing an even bigger fiscal shortfall at the end of the current parliament than that already set out in the OBR’s forecasts.
Mr Johnson said his central forecast “would have borrowing at least another 1 per cent of national income higher in 2024-25 and subsequently”, meaning that if Mr Sunak wanted to balance the current budget, he would eventually need to cut spending or raise taxes by 2 per cent of national income, or £40bn.
Mr Sunak sent a strong signal on Thursday that tax increases were looming.
He told the BBC the current level of spending was unsustainable and refused to rule out increases in income tax, value added tax or national insurance.
The Conservative party’s 2019 election manifesto promised not to raise these taxes, and the Treasury insisted after Mr Sunak’s BBC interview that the manifesto pledges still applied.