The fact that households are experiencing the greatest pressure on living standards since modern records began in the 1950s adds to the injury, in the run-up to a local election campaign that will test the Conservative vote machine. For those who go to the polls before next month’s polls, what good news is there? Last year this time the political landscape was very different. Furlough had kept away Covid’s worst financial disasters, and predicted an end to the pandemic thanks to rapid progress with the vaccine program. Johnson was in a high, promising “jab, jab, jab and job, job, job,” as his party ousted Labor at the polls. When voters go to the polls on May 5, they will be less likely to feel well. Growth may be back, but it will not be for many. While the average household budget was hit hard by the Covid recession, with a record amount of savings during the lockdown thanks to government support, this year will be marked by a lack of help as incomes plummet. Despite economic growth as a whole, the typical family will face the worst financial loss since the archives began around the end of the post-war portion. Over the past four decades, real disposable household income has fallen in just four previous cases: three times since the 2008 financial crisis and again since the Brexit that pounded the pound, hitting Britain’s spending power. Officially, the UK economy recovered to pre-Covid levels around the end of the year, following a sharp but fortunately brief recession. However, the recession continues for most people, with average real income now expected to recover by 2024 – two full years later. Given these factors, it is surprising that Rishi Sunak chose not to do more in his mini-budget for the spring statement. The chancellor loved to talk about “building a bridge” over the financial ravine that Covid opened. While it was generally successful, the project has not been clearly completed. According to the New Economics Foundation, more than 34% of the population – up to 23.5 million people – will not be able to afford the cost of living this year. Using a measure known as the minimum income standard – based on a public opinion poll on what people think is necessary to cover socially acceptable basic expenses – he estimates that almost half of all children will fall below the threshold. The blow will be felt more outside London and the South East, with 44% of all families in the Northeast falling below the minimum income level. As the squeeze will have a disproportionate impact on the poorer regions, it is even more remarkable that Sunak has omitted any new funding for the uptrend in its spring statement. Following the refusal to increase benefits in the face of rising inflation, the Joseph Rowntree Foundation says Britain will see the biggest drop in the value of its base rate of non-working benefits in the last 50 years. After a decade of cuts and freezes made as part of the Conservatives’ austerity effort, this benefit has lost its value in eight of the last 10 years. Not only did the Tories fail to mitigate the current cost-of-living crisis, but they dismantled vital support systems in previous years. The great danger now is that such intransigence could set the stage for a worse recession. Most meteorologists expect the pressure on households to ease next year, but the risks are growing that what started as a temporary sting may remain for much longer. Discussions about a recession are growing on both sides of the Atlantic. As household finances are hit hard, consumer spending is expected to slow sharply, while the prospect of a steady increase in business investment could be frozen by growing uncertainty. In the US, economists have begun to warn of a shock recession. Official figures this week are expected to reveal a slowdown in the UK economy in February and another rise in inflation. Last month, the Office of Budget Responsibility said there was a one in five chance of GDP shrinking this year or next, amid uncertainty over Russia’s war in Ukraine, inflation, world commodity prices and Covid. There is growing agreement that Sunak will need to do more. Steffan Ball, the UK’s chief economist at Goldman Sachs and former chairman of the financial advisory board to former Torres Chancellor Phillip Hammond, expects Sunak to be called to action. First and foremost, an increase in benefits is needed to mitigate the blow from rising living costs. Beyond that, for basic reasons of fairness and for supporting wider activity in a faltering economy, Ball emphasizes a technical inconsistency that could be addressed. Since the 1980s, governments have typically increased the value of benefits each April with the rate of inflation in the previous September, with the aim of keeping them in line with the cost of living. For this year, however, the 3.1% inflation rate from last fall now looks bad out of rhythm as the measure for the rising cost of living jumps to 8%. In view of this autumn, inflation is forecast by the OBR at 7.5% in September, which means that a large increase in prosperity is forecast for the spring of 2023. However, when households are in greater need now and inflation is projected to fall sharply next year, a growth promotion could be envisaged. The government must, at the very least, increase the value of benefits to show that it is serious about helping those most in need. Failure to do so will only ensure that the conditions for increasing poverty are consolidated, while political parties with a poorer history do not tend to do well in opinion polls.
