Beginning to see the Light: Poverty, Worry, and Destruction

‘And she said ‘We are all just prisoners here, of our own device’

And in the master’s chambers,

They gathered for the feast’

No, this isn’t the title to another piece about the Ukraine, I refer to the impact of yesterday’s spring statement (‘the statement’) by the Chancellor Rishi Sunak.

 
I wrote previously that, in the current cost-of-living crisis that we are all subordinate to Sunak’s political ambitions, and I still believe that to be true. Most of the population are struggling financially, yet they are merely collateral damage sacrificed on the altar of his political ambitions.

As I wrote in ‘The Man Who Fell to Earth’,’ Sunak is blinded by the need to appear ‘Tory’ if he wants to be their next leader’. I also added, ‘and the Bank seems to be trying to deal with a situation it barely understands with a policy that is only going to depress an economy that is already grinding to a halt’. The sentence about the bank [Bank of England] features more in ‘Open for Business’.

Tory backbenchers cheered lustily when Sunak announced a 1p income tax cut designed to come into force in April 2024. Without wishing to appear cynical this is one month before the date being penciled in for the next general election.
 

‘we are all subordinate to Sunak’s political ambitions’

 
Like any good chancellor, Sunak gilded the lily, announcing a package of new measures that will provide a £9bn stimulus to the economy, C.0.4% of the economy’s annual output.

Whilst this sounds wonderful it isn’t, as Paul Dales of Capital Economics pointed out it leaves households facing a £20bn hit to their real disposable incomes from rising food, fuel and utilities prices over the next couple of years. Living standards, according to the Office for Budget Responsibility (‘OBR’), are still going to be cut by more than 2% this year.

Pensions, universal credit, and other benefits are going up by 3.1% in April, whilst inflation is expected to exceed 8%.

Not only has he tried to pull the wool over our eyes, but he is also trying the same trick with his backbenchers, only his attempts at being a Thatcherite tax-cutter don’t add up. The net tax cuts he announced offset about one-sixth of the tax rises introduced since he became chancellor in February 2020.

The net effect according to the OBR is that the current UK tax burden is the highest since the 1940s.

Backbenchers aside, Sunak offered little to those already struggling with rising prices. As quoted above, the OBR expect real household disposable incomes per person to fall by 2.2% in 2022-23 as earnings from work fail to keep pace with soaring inflation. This would be the biggest fall in a single financial year since modern records began in 1956-57, and they expect it will take until 2024-25 for inflation-adjusted living standards to return to their pre-pandemic level.
 

‘households facing a £20bn hit to their real disposable incomes from rising food, fuel and utilities prices’

 
Sunak did acknowledge the issue, saying he would ‘stand by’ households by launching an immediate cut in fuel duty and raising the threshold at which workers begin to pay national insurance contributions.

Analysis by the OBR showed that his proposed support measures, which are worth a combined £17.6bn, would only cushion about a third of the hit to living standards, while the chancellor’s tax cuts would only undo about one-sixth of the total tax increases he had previously announced.

What I find especially uncaring is that he has funds at his disposal. Government borrowing in the current financial year could be C.£55.2bn lower than estimated in October, according to the OBR. Which suggests that ‘Sunak would still have about £30bn of headroom within his self-imposed tax and spending limits.’

Rather than using this to help the many on need he is squirrelling it away to fund pre-election giveaway to buy the next election.

There is a human cost to the chancellors’ cynicism; in Stoke-on-Trent, dubbed the home of Brexit, almost 50% of children are living in poverty. ⁽¹⁾

The article in the Guardian quotes a lady who runs a foodbank there, tells of a teacher who has two other jobs and still does not have enough money to buy food for herself.
 

‘in Stoke-on-Trent, dubbed the home of Brexit, almost 50% of children are living in poverty’

 
According to leading economists, Sunak’s statement will push 1.3 million people, including half a million children, below the poverty line next year.

The Resolution Foundation said just one in eight workers would have their tax bills fall by the end of this parliament in May 2024, when the rate of income tax would drop by 1p to 19p.

Torsten Bell, the Foundation’s chief executive said; ‘In the face of a cost of living crisis that looks set to make this parliament the worst on record for household incomes, the chancellor came to the box yesterday promising support with the cost of living today, and tax cuts tomorrow. ‘The decision not to target support at those hardest hit by rising prices will leave low- and-middle income households painfully exposed.’

The foundation’s analysis of Sunak’s statement estimates that a typical family will experience a £1,100 decline in income this year, or about 4%, with the poorest households facing a 6% fall.

Of the 31 million people in work, 27 million would pay more in tax and national insurance in 2024-25.

To paraphrase what I wrote at the beginning, we are just pawns in the game, mere collateral damage sacrificed on the altar of his [Sunak’s] political ambitions.

The Ukraine crisis provides him with a ready-made scapegoat, Vladimir Putin. Using sanctions to fight his aggression means increases in commodity prices but it’s a price we must pay to defeat a totalitarian state. I am sure when the kids are cold and starving, parents will agree the cost is worthwhile!

It would seem common sense to suggest that governments do not generally get more popular by making millions of people poorer. But, in Britain, we have a record of swallowing bitter economic pills prescribed by Tory governments and still voting for them.
 

‘You’re too old to lose it, too young to choose it

And the clocks waits so patiently on your song

You walk past a cafe but you don’t eat when you’ve lived too long’

 
Notes:
 

1. https://www.theguardian.com/commentisfree/2022/mar/23/rishi-sunak-broken-promise-cost-of-living-food-bank

 
A bonus piece prompted by the Spring Statement; what a grindingly grim outlook for millions of people – is it time to don the kipper tie and fire up the brown Allegro?

‘A quick, but hopefully not too tardy piece to rip into Sunak’s spring statement. He simply doesn’t care, he is too remote, and just doesn’t get it.

Two lyrics; we open with the Eagles ‘Hotel California’, and close with Bowie’s ‘Rock n Roll Suicide’; I am not sure my usual ending ‘enjoy’ is appropriate!
 
@Coldwar_Steve
 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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