Chancellor Rishi Sunak promised to support families through the cost-of-living crisis in yesterday’s Spring Statement – but absolute poverty is expected to rise by 1.3 million people next year, the Resolution Foundation (RF) has warned.

According to RF, “faced with an unprecedented squeeze on family’s household finances and a significant boost to the public finances, the Chancellor opted for a big but poorly targeted policy package focused on partially offsetting some of the big tax rises he’d previously announced, rather than on supporting those families hit hardest by the cost of living crisis”.

In its Inflation Nation update, RF’s key findings include:

  • Families face £1,100 income losses. The scale of the cost-of-living squeeze is such that typical working-age household incomes are to set to fall by 4% in real-terms next year (2022-23), a loss of £1,100, while the largest falls will be among the poorest quarter of households where incomes are set to fall by 6%
  • Absolute poverty rises by 1.3 million. The scale and distribution of the cost-of-living squeeze, coupled with the lack of support for low-income families, means that a further 1.3 million people are set to fall into absolute poverty next year, including 500,000 children – the first time Britain has seen such a rise outside of recessions
  • Tax rises for seven in eight workers. Considering all income tax changes to thresholds and rates announced by Rishi Sunak, only those earning between £49,100 and £50,300 will actually pay less income tax in 2024-25, and only those earning between £11,000 and £13,500 will pay less tax and National Insurance (NI). Of the 31 million people in work, around 27 million (seven in eight workers) will pay more in income tax and NI in 2024-25
  • A £11,500 wage loss. With real wages in the midst of a third major fall in a little over a decade, average weekly earnings are on course to rise by just £18 a week between 2008 and 2027, compared to £240 a week had they continued on their pre-financial crisis path. This lost growth is equivalent to a £11,500 annual wage loss for the average worker
  • A parliament of pain. Typical household incomes are forecast to fall by 2% across the parliament as a whole (2019-20 to 2024-25), making this parliament the worst on record for living standards, beating the 1% income fall over the course of the 2005-05 to 2010-11 parliament.
  • Rapid fiscal consolidation. The decision to bank much of the borrowing windfall set out by the OBR sees borrowing set to fall rapidly from 14.8% of GDP in 2020-21 to 1.3% of GDP in 2024-25 – lower than it was expected to reach pre-pandemic. This increases the Chancellor’s fiscal headroom at the end of the parliament from £18 billion to £28 billion, the equivalent of a further 4-5p cut in the basic rate of income tax

Torsten Bell, RF’s Chief Executive, said: “In the face of a cost-of-living crisis that looks set to make this Parliament the worst on record for household incomes, the Chancellor came to the dispatch box yesterday promising support with the cost of living today, and tax cuts tomorrow. Significant measures were announced on both counts, but the policies do not measure up to the rhetoric.

“The decision not to target support at those hardest hit by rising prices will leave low-and-middle income households painfully exposed, with 1.3 million people, including half a million children, set to fall below the poverty line this coming year.

“And despite the eye-catching 1p cut to income tax, the reality is that the Chancellor’s tax changes mean that seven-in-eight workers will see their tax bills rise. Those tax rises mean the Chancellor is able to point to a swift fiscal consolidation and significant headroom against his fiscal rules.

“The big picture is that Rishi Sunak has prioritised rebuilding his tax-cutting credentials over supporting the low-to-middle income households who will be hardest hit from the surging cost of living, while also leaving himself fiscal flexibility in the years ahead. Whether that will be sustainable in the face of huge income falls to come remains to be seen.”