JRF sets out challenges for the Chancellor’s Budget

Ahead of the Chancellor’s Budget on Wednesday, the independent Joseph Rowntree Foundation has set out the main challenges facing households, which the Chancellor will need to tackle if his Budget is to be a success.

The Budget takes place against a disconcerting backdrop, with soaring prices, labour market participation lower than pre-pandemic, and a housing market downturn well underway. The Universal Credit system also provides considerably less than people need to afford the essentials.

Key JRF analysis on the challenges facing the Chancellor

• The cost of living crisis is the number one issue for the public, and protecting families from financial hardship should be a priority for the Chancellor in the Budget. Prices rose by 16% over the past two years, with prices rising at a faster pace than in any other pair of successive years since 1979-81.
• The Government has supported families through these price rises with significant support on energy bills and uprating benefits by inflation each year. Overall, low-income families on means tested benefits will likely be broadly insulated from the rise in prices since 2021-22, and face a gap of £350 on average in income and support because of price rises over the past two years.
• But a long-term solution to high energy prices is desperately needed for the 1.6 million working-age people on low incomes and with low savings, but not receiving means tested benefits. Families in the bottom fifth of incomes not receiving means tested benefits are facing a huge gap of £3,650 on average between the increases in prices they’ve faced since 2021-22 and the increase in income and financial support from the government that they have received.
• Improving labour market participation is a welcome focus for the Budget, with 9 million people now in so-called ‘economic inactivity’.  2.2 million of whom have ill health and say that they would like to or expect to work in the future.
• As part of this focus, the government has committed already to scrapping the Work Capability Assessment (WCA) alongside the publication of a health and disability White Paper. No-one will mourn the loss of the WCA, but what is crucial is that the benefit system redesign which follows protects the living standards of people out of work with ill-health and disability, and takes the opportunity to move on from a counter-productive regime for those not ready to work. Any change to WCA must also be linked to improved employment support and access to flexible jobs. Without this, there is no point going through upheaval of restructuring assessments. With this, the prize of higher labour market participation from those with ill-health or disability is much more attainable.
• The Chancellor has also committed to addressing low take-up rates of Universal Credit childcare support by removing the need for parents to pay costs upfront. This would bring the system in line with tax-free childcare and ‘free hours’ for higher earners, where the Government foots the bill upfront. Government should also tackle underlying driver of unaffordable childcare costs by paying providers the true cost of ‘free hours’, and look to create a second earner work allowance to help households on Universal Credit keep more of their earnings.
• Many low-income households are struggling with the long-term challenge of inadequate levels of benefits: We are now in a position where the basic rate of Universal Credit for a single person is at least £35 a week short of what is needed to afford core essentials, like food, utilities and vital household items, and at least £66 a week short for a couple. Universal Credit should offer support to anyone in need of help, but right now it’s clearly not providing enough to cover the cost of life’s essentials, with around 90% of low-income households receiving Universal Credit going without. 
• Renters, both social and private, are under even greater pressure. Rents across the UK have increased substantially, rising by the largest amount in a decade in November 2022). Rates of Local Housing Allowance, the benefit designed to help private renters cover the cost of their rent, have been frozen in cash terms at rent levels from September 2019 meaning that rates of support have become detached from rents.

What the Chancellor should do:

Helping families through the cost-of-living crisis:

• Keep the Energy Price Guarantee at £2,500 a year or lower for the next quarter, and commit to the implementation of a social tariff to target support more effectively for a world in which bills are elevated for the long term.
• Start the work towards introducing an Essentials Guarantee. This would make sure the basic rate of Universal Credit at least covers the essentials – like food, utilities and vital household items – and that deductions (such as the repayment of debts to the Government at unaffordable rates) can never pull support below this level.

Labour market participation:

• Improve the support offered to those who get ill while in work, via reforms to sick pay and an expansion of occupational health provision. Widen the eligibility and generosity of Statutory Sick Pay and increase the provision and timeliness of state-provided occupational health support.

• The scrapping of the Work Capability Assessment must be combined with a redesign of the benefit system that supports disabled people and those with ill-health to participate in paid work while maintaining their living standards. The Chancellor must protect the living standards of disabled people, and confirm how he will do that without a WCA, which is the Government’s tool for providing people who need it an extra £350 a month.
• Pay childcare costs for working parents on Universal Credit upfront, as for higher-income parents, while tackling the increasing cost of childcare through funding which reflects the actual cost of care

Confronting the housing market downturn:

• Establish a new version of the Mortgage Rescue Scheme for homeowners, and unfreeze Local Housing Allowance, giving support with housing costs to the 30th percentile of local market rents.
• Double the Stamp Duty Land Tax Surcharge on investor purchases to pre-empt a boom in speculative investment in the housing market.
• To maintain, and ideally enhance, current rates of new housebuilding, imminent underspends on Homes England grant programmes should be recycled into new social rented supply and fund housing providers to acquire and redesign stalled sites to include more non-market tenure homes.