Lower-income households set to be £500 poorer after chancellor’s spring statement – thinktank
Lower income households are set to be £500 poorer due to benefit cuts and a weak economic outlook, a thinktank has found.
Living standards are on track to fall over the next five years for the poorest half of households, according to the Resolution Foundation’s analysis of Wednesday’s spring statement.
It said a fall of this scale had only been exceeded historically by the early 1990s recession and the 2008 financial crisis and fallout.
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How has the economy changed?
Its analysis was released against the backdrop of a backlash against the chancellor, with Labour MPs among those joining charities in warning that her decision to target welfare spending to bolster the public finances was a mistake.
In its latest assessment of the economy that accompanied her speech, the Office for Budget Responsibility declared that real household disposable income per person was expected to grow from next year to 2029-30, led by stronger wage growth as inflation started to fall.
But the country’s independent fiscal watchdog said a global trade war could reduce economic output by 1%, leaving Rachel Reeves’s small headroom – cash set aside that was created by her spending cuts – at risk of being wiped out for a second time.
She was speaking just hours before Donald Trump revealed plans to target all car imports to the US with 25% tariffs.
Paul Johnson, director of the Institute for Fiscal Studies think-tank, said: “If you are going to have ‘iron-clad’ fiscal rules then leaving yourself next to no headroom against them leaves you at the mercy of events.”
He warned that Ms Reeves could find herself soon at the centre of renewed tax hike speculation ahead of the autumn budget.
Poorest households worst hit
The overall impact of all tax and benefit changes taking effect in this Parliament will reduce the incomes of the second poorest fifth of households by 1.5%, compared to a 0.6% fall for the richest fifth, the foundation found.
The £4.8bn of welfare savings announced by Rachel Reeves will actually result in £8.1bn in cuts, it said.
“After accounting for the £1.9bn boost to the standard rate of universal credit, and the ‘gain’ from not going ahead with scored-but-never-implemented changes to the Work Capability Assessment, cuts to ill-health, disability and carer’s benefits rise to £8.1bn in 2029/30, and will continue to grow over time,” it calculated.
The changes to benefits mean there are “huge holes” in the welfare safety net, and the foundation called for transitional protections to prevent such sharp income shocks.
Ruth Curtice, the chief executive of the Resolution Foundation, said: “High debt servicing costs, weak tax receipts, and the need to reassure jittery markets meant the chancellor had to announce tax rises or spending cuts in her spring statement.
“She chose to focus the bulk of her consolidation on welfare cuts. These cuts have been justified on the basis of getting people into work, but it is questionable how much of a jobs boost they’ll deliver.
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‘I’ll struggle if I lose disability support’
Read more:
Are you better or worse off after the spring statement?
OBR slashes UK growth forecast for 2025
“After all, the bulk of the cuts are to disability benefits which aren’t related to work, and the cuts take effect from 2026, three years before the government’s employment support programme kicks into gear.
“While the OBR’s [Office for Budget Responsibility] outlook for growth today got gloomier, it is far more optimistic about Britain’s medium-term economic prospects.
“The chancellor will hope that reality catches up with the OBR, rather than the OBR falling back to reality, otherwise more tough choices await.”
Ms Curtice added: “The outlook for living standards remains bleak. Britain’s poor economic performance, combined with policies that bear down hardest on those on modest incomes, mean that 10 million working-age households across the bottom half of the income distribution are on track to get £500 a year poorer over the course of the Parliament.”
The cyber attack on Jaguar Land Rover (JLR), which halted production for nearly six weeks at its sites, cost the company roughly £200m, it has been revealed.
Latest accounts released on Friday showed “cyber-related costs” were £196m, which does not include the fall in sales.
Profits took a nose dive, falling from nearly £400m (£398m) a year ago to a loss of £485m in the three months to the end of September.
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Revenues dropped nearly 25% and the effects may continue as the manufacturing halt could slow sales in the final three months of the year, executives said.
The impact of the shutdown also hit factories across the car-making supply chain.
Slowing the UK economy
The production pause was a large contributor to a contraction in UK economic growth in September, official figures showed.
Had car output not fallen 28.6%, the UK economy would have grown by 0.1% during the month. Instead, it fell by 0.1%.
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How cyber attack ‘effectively hacked GDP’
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Reacting to JLR’s impact on the GDP contraction, its chief financial officer, Richard Molyneux, said it was “interesting to hear” and it “goes to reinforce” that JLR is really important in the UK economy.
The company, he said, is the “biggest exporter of goods in the entire country” and the effect on GDP “is a reflection of the success JLR has had in past years”.
Recovery
The company said operations were “pretty much back running as normal” and plants were “at or approaching capacity”.
Production of all luxury vehicles resumed.
Investigations are underway into the attack, with law enforcement in “many jurisdictions” involved, the company said.
When asked about the cause of the hack and the hackers, JLR said it was not in a position to answer questions due to the live investigation.
A run of attacks
The manufacturer was just one of a number of major companies to be seriously impacted by cyber criminals in recent months.
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Are we in a cyber attack ‘epidemic’?
High street retailer Marks and Spencer estimated the cost of its IT outage was roughly £136m. The sum only covers the cost of immediate incident systems response and recovery, as well as specialist legal and professional services support.
The Co-Op and Harrods also suffered service disruption caused by cyber attacks.
Four people were arrested by police investigating the incidents.
Sir Keir Starmer and Rachel Reeves have scrapped plans to break their manifesto pledge and raise income tax rates in a massive U-turn less than two weeks from the budget.
The decision, first reported in the Financial Times, comes after a bruising few days which has brought about a change of heart in Downing Street.
Read more: How No 10 plunged itself into crisis
I understand Downing Street has backed down amid fears about the backlash from disgruntled MPs and voters.
The Treasury and Number 10 declined to comment.
The decision is a massive about-turn. In a news conference last week, the chancellor appeared to pave the way for manifesto-breaking tax rises in the budget on 26 November.
She spoke of difficult choices and insisted she could neither increase borrowing nor cut spending in order to stabilise the economy, telling the public “everyone has to play their part”.
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‘Aren’t you making a mockery of voters?’
The decision to backtrack was communicated to the Office for Budget Responsibility on Wednesday in a submission of “major measures”, according to the Financial Times.
The chancellor will now have to fill an estimated £30bn black hole with a series of narrower tax-raising measures and is also expected to freeze income tax thresholds for another two years beyond 2028, which should raise about £8bn.
Tory shadow business secretary Andrew Griffith said: “We’ve had the longest ever run-up to a budget, damaging the economy with uncertainty, and yet – with just days to go – it is clear there is chaos in No 10 and No 11.”
How did we get here?
For weeks, the government has been working up options to break the manifesto pledge not to raise income tax, national insurance or VAT on working people.
I was told only this week the option being worked up was to do a combination of tax rises and action on the two-child benefit cap in order for the prime minister to be able to argue that in breaking his manifesto pledges, he is trying his hardest to protect the poorest in society and those “working people” he has spoken of so endlessly.
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Ed Conway on the chancellor’s options
But days ago, officials and ministers were working on a proposal to lift the basic rate of income tax – perhaps by 2p – and then simultaneously cut national insurance contributions for those on the basic rate of income tax (those who earn up to £50,000 a year).
That way the chancellor can raise several billion in tax from those with the “broadest shoulders” – higher-rate taxpayers and pensioners or landlords, while also trying to protect “working people” earning salaries under £50,000 a year.
The chancellor was also going to take action on the two-child benefit cap in response to growing demand from the party to take action on child poverty. It is unclear whether those plans will now be shelved given the U-turn on income tax.
A rough week for the PM
The change of plan comes after the prime minister found himself engulfed in a leadership crisis after his allies warned rivals that he would fight any attempted post-budget coup.
It triggered a briefing war between Wes Streeting and anonymous Starmer allies attacking the health secretary as the chief traitor.
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Wes Streeting: Faithful or traitor? Beth Rigby’s take
Read more: Is Starmer ‘in office but not in power’?
The prime minister has since apologised to Mr Streeting, who I am told does not want to press for sackings in No 10 in the wake of the briefings against him.
But the saga has further damaged Sir Keir and increased concerns among MPs about his suitability to lead Labour into the next general election.
Insiders clearly concluded that the ill mood in the party, coupled with the recent hits to the PM’s political capital, makes manifesto-breaking tax rises simply too risky right now.
But it also adds to a sense of chaos, given the chancellor publicly pitch-rolled tax rises in last week’s news conference.
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