Home Society & Culture Social Market Foundation Responds to Spring Statement 2022

Social Market Foundation Responds to Spring Statement 2022

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On addressing the needs of the poorest, Dr Aveek Bhattacharya, chief economist at the SMF, said: ‘The Spring Statement failed to measure up to the hardship in store for the poorest families, who face deep economic pain unless further action is taken.’

‘The hit to living standards is set to be on a similar scale to the worst recessions, but the Chancellor’s response was far from the adaptable ‘whatever it takes’ approach he took to the pandemic response. The changes to national insurance and cuts to fuel duty will help some households but do much less for the poorest and more vulnerable. The £500 million added to the Household Support Fund is far too little.’

On intergenerational fairness, Scott Corfe, research director at the SMF, said: ‘This was not a good Spring Statement for workers or young people. It risks widening the intergenerational divide in the UK. Benefits are not being uprated sufficiently amid a cost-of-living crisis, and workers’ wages are set to fall for two consecutive years after adjusting for inflation.’ Thousands of younger workers will also be hit by recent changes to student loan repayments.

‘Increasing National Insurance rates hit working-age households hardest, with the retired not paying National Insurance on pension income. At the same time, older households will benefit from the continuation of the state pension triple lock and a future cut in the basic rate of income tax.’

On fuel duty and road pricing, Scott Corfe, research director at the SMF, said: ‘The Chancellor’s 5p cut in fuel duty will help motorists cope with high fuel costs. But this is poorly targeted support, with richer households benefiting the most from the measure in cash terms.’

‘The Chancellor also continues to ignore the elephant in the room: the need to completely overhaul motoring taxation as increasing numbers of electric vehicles take to the road.’

‘Fuel duty is no longer fit for purpose. Rather than being cut, it needs to be replaced with a nationwide road pricing scheme. Not only would road pricing future-proof motoring taxation, but it would allow more targeted support for lower-income motorists when then next cost of living crisis comes along.’

On the tax system, Dr Aveek Bhattacharya, chief economist of the SMF, said: ‘It is understandable that the Chancellor’s attention was focused on the acute economic emergency facing the country this year. However, the measures in the Spring Statement raise as many questions as they answer in terms of the functioning and sustainability of the state in decades to come.’

‘The UK’s tax base increasingly resembles Swiss cheese. Today, the Chancellor poked out more holes: cutting fuel duty, adding further complexity to VAT, and promising reductions in income tax. More secure funding, a stronger and more productive economy, and a clear strategy for improving efficiency are necessary if Rishi Sunak achieves the ‘world-class public services’ he promised us last autumn.’

On energy efficiency, Niamh O Regan, a researcher at the SMF, said: ‘The cost-of-living crisis is being fueled by soaring gas prices and Russia’s aggression is fanning the flames. Insulating Britain’s homes will go a long way to protect households, slash bills, and lower emissions and so the Chancellor’s VAT cut for home energy efficiency improvements is a welcome intervention today.’

‘The duration of this relief signals confidence to an industry where previous schemes have often been too short-term and unsuccessful. But in practice, it is unclear if relief of £50 million a year is near enough for a country where most homes are drafty, leaky, and reliant on gas heating. With the Energy Independence Strategy expected next week, the Chancellor now has the chance to take these measures one step further to drive the UK towards cleaner, cheaper energy.’

On public service reform, James Kirkup, director of the SMF, said: ‘Public spending as a share of the economy is highest since the late 1970s. The tax burden has been at its highest since the 1940s. Higher debt interest payments will cost almost £100 billion in 2027.’

‘Politically, the state is as big as it can get, and any politician who wants cash to fund crowd-pleasing policies – be they tax cuts or more spending – will have to think creatively about how to fund them. That means reforming public services to make them more efficient – taxpayers deserve to get more bang for their bucks.’

‘Public service reform has been largely absent from political debate in the last few years as politicians argued about who could spend most. They should now get back to competing over who can spend best.’

On addressing fraud, Richard Hyde, senior researcher at the SMF, said: ‘The funding announced in the Spring Statement to support the establishment of the Public Sector Fraud Authority and increase counter-fraud activity across the public realm is welcome. The signal that it sends about the Government taking at least some fraud seriously, with the Treasury’s commitment having been questioned by Lord Agnew’s resignation remarks in January.’

‘However, there is a notable absence of announcements about sufficiently resourcing the law enforcement effort against the huge amount of fraud (and associated offences such as cybercrimes) committed against the public and businesses, which – together – grew by 47% across the Covid-19 period and accounted for more than four in ten of the crimes suffered by victims in England and Wales.’

‘Resourcing for law enforcement commensurate with the scale of the problem is needed if the Government is to reduce fraud rather than manage it. More resources will enable the number of police officers and expert support staff that work on fraud across the country to increase from a paltry 1,700 to more than 30,000.’

On skills, Amy Norman, senior researcher at the SMF, said: ‘Apprenticeship numbers have been slipping for years now, and the picture is particularly bleak for young people, with the proportion of under-19s starting apprenticeships falling by almost half since 20162017. A good idea is being implemented poorly.

‘The Apprenticeship Levy has faced challenges since its introduction five years ago, so it is welcome to see the Chancellor recognise this by promising a review. Building greater flexibility into apprenticeships and how businesses can use Levy funds should be a cornerstone of reform.’

‘Employer investment in skills and training is key to solving Britain’s ongoing productivity puzzle. Reforming the Apprenticeship Levy is an opportunity to address skills gaps, help young people work, and boost the productivity of British businesses.’

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