Spring Statement Myths Busted

 Rishi Sunak’s spring statement myths busted, by UNISON

Rishi Sunak’s sweeping promises don’t stand up to scrutiny, with families now facing the steepest drop in living standards since the 1970s

When the chancellor Rishi Sunak delivered his spring statement last week, he promised to tackle the rising cost of living. But the headlines the next day were unanimous: his announcements failed to hit the mark.

But just how wide of the mark was he? How many promises were broken by the chancellor last week? And, with the energy price cap pushing bills up from 1 April, does the spring statement deliver what is needed to avoid a cost of living crisis for households across the UK?

Promise: “I am going to deliver a lower tax economy”

Reality? Taxes are higher now than they have been at any point since the 1940s

Rishi Sunak claims to have given the British public the biggest tax cuts in a generation – but this is only possible because he has implemented even larger tax rises. His meagre tax cuts are only possible because he has raised taxes so much over the past few years.

Rishi Sunak’s so-called tax cuts announced in last week’s spring statement only offset his own tax rises by a sixth. The government Office for Budget Responsibility said “Net tax cuts announced in this Spring Statement offset around a sixth of the net tax rises introduced by this chancellor since he took over the role in February 2020, and just over a quarter of the personal tax rises he announced last year”.

This means that the chancellor’s tax cut announcements don’t actually mean the tax burden goes down. In fact the amount of tax we pay actually increases to 36.3% of GDP in 2026-27 compared with 33% of GDP when Rishi Sunak became chancellor in 2020.

According to the Institute for Fiscal Studies, in just two years Boris Johnson and Rishi Sunak have announced tax rises worth 2% of GDP – the same as Tony Blair and Gordon Brown did in ten. The Government’s tax take is set to reach its highest since the late 1940s.

Promise: “We will help families with the cost of living”

Reality? Families are struggling to make ends meet now more than ever

UK families face the steepest drop in living standards and the deepest cost-of-living crisis since the 1970s. Household incomes are predicted to fall by 4% in real terms – or an average of £1,000, according to the Resolution Foundation.

On 1 April 2022 energy bills will increase by up to 54% as the energy price cap rises. National insurance contributions will increase 1.25 percentage points. Essentials like broadband are set to increase, with BT announcing a 9% bills hike and supermarkets like Tesco predicting food costs will increase by 5%.

Childcare costs in the UK are the second highest in the world and fuel costs are at an all time high. Meanwhile wages have stagnated. In the public sector, workers have been subject to a decade of wage restraint and below-inflation increases.

Instead of announcing measures that would help tackle this crisis – such as a real terms public sector wage increase, a reinstatement of the Universal Credit uplift, a windfall tax on big energy profits to fund lower bills, and properly funding childcare provision – the chancellor has chosen headline grabbing options.

Many of his announcements are temporary, such as the £200 energy bill rebate. In reality, this is a compulsory loan which will repaid through higher energy bills in the future.

Promise: “We will share the proceeds of growth fairly”

Reality? A tax hike for working people and a tax cut on wealth

National Insurance is a tax on workers and their employers. Income tax is a tax on everyone whether they get their income from working or from unearned wealth. That means an increase in National Insurance contributions is a tax targeted at working people.

This increase comes at the same time as Rishi Sunak has announced a future income tax cut. This means those who make their money in other ways – for example landlords, people with private wealth and property, or those who earn money from their investments – will get a tax cut.

Analysis by the Resolution Foundation shows that many of the richest taxpayers have benefitted from the Government’s decision not to levy any significant taxes on wealth at a time when savings and investments, including property, had made unprecedented gains.

The losers are low earners, who gain the lease from the increase in tax thresholds as any tax cut is cancelled out by significantly lower benefits. The Resolution Foundation shows that the increase in the National Insurance threshold is a tax cut mostly for middle and top earners – only £1 in £3 of this benefit goes to the bottom half of earners.

Promise: The 5p fuel duty cut is “a tax cut this year for hardworking families”

Reality: 5p does help at the pump but prices are still spiralling out of control

Because of the record increases in fuel prices thanks to inflation and the impact of the Russian invasion of Ukraine, the RAC were clear that the reduction will only “bring prices back to where they were a week ago” and called the cut a “drop in the ocean”. The cut is also only a short-term measure, which will last for only 12 months.

Not only is the cut in fuel duty a temporary salve for rising prices, it is also an unequal one. Because lower income households spend a lot less on petrol or diesel than wealthier ones – perhaps because of the need to budget or because they are less likely to own more than one vehicle – they receive less of the benefit. According to the New Economics Foundation, only 7% of the benefit will go to the poorest 20% of the population, while 30% will go to the richest 20% of the population. This means the 5p cut is worth only £1.80 per month for the poorest households.

These figures also assume the full 5p cut is passed onto motorists at the pump – in reality, the AA has found that petrol prices have fallen just 2.71p as petrol stations fail to pass on the savings.

Meanwhile, despite the issue being raised with the Treasury and Secretary of State for Health, the Government has failed to update mileage rates. HMRC’s rates for employees claiming back miles driven just to do their jobs have not been updated for a decade, which means many workers are out of pocket simply by doing their jobs.

Promise: “Public sector workers will see fair and affordable pay rises”

Reality: Any pay rises planned in October’s budget have been wiped out by inflation

The chancellor didn’t mention public sector pay once in his spring statement. Despite promising an end to the pay freeze in autumn, record levels of inflation have wiped out any prospect of a pay rise in line with inflation. Instead, inflation at a 30-year high means public sector workers risk yet another real-terms pay cut.

To make good on his promise to end the freeze for public sector workers, the Institute for Fiscal Studies estimated that the chancellor needed to commit £10bn to ensure pay kept pace with inflation. The fact that this funding was not forthcoming, and public sector workers didn’t even get a mention, means this is another broken promise from Rishi Sunak.

Original Post from UNISON Blog (https://magazine.unison.org.uk/2022/03/29/rishi-sunaks-spring-statement-myths-busted-by-unison/)