Autumn Statement: Austerity means even the strivers will struggle

6th Dec 2012

Austerity will be extended until at least 2018. What will be the impact on living standards for poorer households?

Yesterday’s Autumn Statement confirmed austerity will be extended – until at least 2018. What will be the impact on living standards for poorer households?

Despite talk of ‘all being in it together’, outside of the richest 10% the impact of austerity continues to fall more heavily on the poorest. This is demonstrated by the Treasury’s own analysis. For a number of reasons, people at the lower end of the income spectrum will increasingly struggle to make ends meet in coming years – and we can expect poverty rates to go up as a direct result.

One of the Chancellor’s headlines was the uprating benefits for working-age people by just 1% for the three years from April 2013 (although this excludes disability and carers benefits). This is below the rate of inflation, which means household costs will continue to rise much faster than incomes.

Perhaps more surprising, given the ‘strivers’ and ‘shirkers’ theme that the Government likes to espouse, this sharp squeeze on incomes doesn’t only apply to those out of work. Elements of both the Working Tax Credit and the Child Tax Credit – both designed to supplement the incomes of the low paid – will also only be uprated by 1%.

Even more surprising still is something that was buried in the small print: the level of earnings that will be disregarded before the Universal Credit begins to taper will rise by just 1% too. Both these changes will have a negative impact on the Government’s desire to make sure work pays. Already the majority of people living in poverty are in households where at least one person works, and the number of households experiencing in-work poverty is likely to continue rising – not least because growing numbers of people are only able to find part-time work when they want and need to work more hours to make ends meet.

What is particularly worrying is that this squeeze on income among the poorest in society comes at a time when living costs are going up rapidly. Research published by JRF earlier this year found the income needed to achieve a minimum standard of living for a family with two children increased by 16% above inflation between 2008 and 2012. And just to be clear, when we say a minimum standard of living we don’t mean a life of luxury – it refers to what the public think is essential to meet a socially acceptable standard of living in the UK today.

The Autumn Statement was not without some relief for essential household costs. The cancellation of the fuel duty rise will be welcomed by those on low incomes who rely on a car, and the continued lifting of the threshold before income tax is paid will make a difference to some on low incomes. But these measures will be more than cancelled out by the squeeze on income and rising costs.

What is needed in order to address this vicious circle of falling incomes, rising costs and rising poverty – in and out of work – is economic growth and job creation. But the news here was not great either, with the Office for Budget Responsibility once again downgrading its forecast for growth. The missing link remains a clear plan for good growth. In the current context the temptation to say any growth will do is high, but unless growth results in well-paying sustainable employment with prospects for progression, the strivers will continue to struggle.