This Budget will leave the poorest households hundreds of pounds a year worse off

Having spent the first 18 months in the job delivering Covid crisis fiscal statements, you can understand why there was a celebratory vibe to the Chancellor’s first “post-crisis” Budget today.

The Government’s official economic watchdog, the OBR, came to the party laden with gifts – including a major upgrade to economic growth and a £141 billion borrowing windfall over the next five years.

The Chancellor duly spent most of this windfall putting the final nail in the coffin on low tax Conservatism with a big-spending “Boris Budget” that raised spending on public services and softened, rather than tackled, Britain’s cost of living crisis.

Rishi Sunak was right to acknowledge that many of the cost of living pressures in Britain – which mean that the inflation peak next spring is set to more than double to 4.4 per cent – are global in nature. The sudden reopening of the global economy has led to supply shocks and disrupted trade flows, pushing up the cost of many goods from gas and freight storage to microchips and second-hand cars.

However, the Government has exacerbated this cost of living crunch with the biggest ever overnight benefit cut earlier this month – reducing Universal Credit for over five million households by £20 a week. The real test of this Budget was whether the Chancellor would offer enough support those losses.

In a wide-ranging Budget where policy action ranged from long-haul flights (taxes up) to microbrewed craft cider (taxes down), the Chancellor announced £2 billion of cuts to various duties on fuel, drinks and flights that will all help a little with the cost of living pressures families are facing. The biggest single cost of living support was a welcome £2 billion package of measures to boost Universal Credit via raising work allowances by £500 a year and reducing the taper rate from 63 to 55 per cent.

These are technical changes to our benefit system, but they will make a huge difference, enabling workers on Universal Credit to keep more of their income as less of their benefit support is taken away as their earnings rise. Broadly speaking, the higher Work Allowance will give a £275 boost per year to a family with housing costs earning over £6,100, while the taper rate reduction will mean they keep 45p of every pound they earn (after tax), rather than 37p.

Together, with the well-deserved 6.6 per cent rise in the minimum wage for Britain’s two million lowest earners, these package of reforms will create a complex mixture of winners and losers. Low earners and those out of work face the worst of the cost of living crunch, while higher-income families on Universal Credit will gain the most. Overall, the poorest fifth of households will be £280 a year worse off.

Of course, looming over all this is widespread uncertainty about the future direction of the economy. No-one knows how long the spike in inflation will last, whether firms will respond by offering higher pay settlements for staff, and whether the ongoing high rate of Covid cases may dampen the bumper period of growth forecast for this year and next.

Put simply, families across Britain should expect a bumpy ride over the next six months, and the measures announced in the Budget today will soften, rather than tackle, the cost of living crisis millions of low-income families will be experiencing.

This article originally appeared in The i paper.