What the Spring Statement means for households

This government has received criticism for not revealing policies first in the House, but instead trailing them in the media. It was only the income tax cut that hadn’t been heavily trailed at the weekend.  But rather than focus on what the Chancellor said, I want to focus on how everything that is happening to the cost of living might hit a ‘typical’ family - and then compare that with what the Chancellor announced this lunchtime.

Of course, there is no such thing as a typical family, and my first advice to any householder would be to first figure out what is happening to your personal costs, but let’s play make-believe here and focus on a family with 2 working adults with a typical family home and mortgage, just to get a sense of the quantum.

Here are the obvious ones:

• Energy costs for an average UK home rise by £700 on an annualised basis next month, with predictions of £500-£1,000 beyond that in October. That could easily be £1,000 increase in the coming year for an average household, potentially more for a typical family living in a slightly larger or less energy efficient house.
• It’s very possible that mortgage payments on a £250k mortgage will rise by over £1,000 over the course of the year (£30 a month for each quarter point of interest rate rises is a good rule of thumb for those who are on a variable rate - and even those who are fixed may not be fixed forever.
• Food inflation is nudging up towards 10%, that could easily be £500 a year extra for a family.
• Prices at the pump are up - before a fuel rebate that could easily be £30 more to fill up an average family car - do that 25 times a year and that’s £750 a year.
• The Health and Social Care Levy impacts a £50k salary by roughly £500 a year. Assume two above median salaries, and we’re talking about hundreds of pounds of impact for a typical family. 
• Utility bills are going up by more than inflation - we found O2 moving prices by nearly 12%; several others are being similarly aggressive. Add in all the general inflation caused by fuel as an input cost, Brexit labour shortages and so forth, and there’s hundreds of pounds more here.
• That’s all before the ‘stealth tax’ of freezing the personal tax bands, which brings more people into higher rates of tax as they receive pay increases.  (Having said that, generally pay increases haven’t kept pace with inflation - we’re not yet geared up for the inflationary economy in terms of HR operations…)

I’ve not been particularly forensic, but this very typical family is out of pocket well over £4,000 a year just from the items listed above.  Let that number sink in - I make this point because our research suggests that many people are still underestimating the potential impact on their finances of all the things that are going on in the world.

So, let’s look at what the Chancellor gave in help to typical households:

• Increasing the NIC threshold to match the tax threshold of £12,570. This cuts the NI bill by about £350 for employees, and does pay for the Health Levy for more than half of workers.
• A fuel duty cut that saves about £3.30 on a typical tank, so around £80 a year for a family filling up fortnightly.
• A cut in VAT on installing solar panels and other environmentally friendly measures (helpful to those with the capital for such outlays, but not a ‘mainstream’ benefit)
• A small increase (£500M) in household funds dispensed by local authorities
• A reduction in the base rate of income tax by 1% by the end of the Parliament. That could be a couple of years away, and is dwarfed by the already announced freeze in income tax thresholds that pulls more employees into higher rates of tax as salaries rise with inflation. When it happens, it’s worth about £380 to an employee paid over £50k.

It was all designed to sound like a lot, but the positive impacts are only a fraction of the pain that UK households will be suffering over the coming period. This will all bite particularly hard as we go into winter, with higher fuel usage on a higher energy cap rate.

The point to make here is that the Chancellor is in a difficult position - essentially the government spent a lot of money on Covid, hoping that the economy could hold higher taxes as we came out of the Covid impact. Instead, we bounced straight into the Ukrainian crisis, with already rising inflation given a boost - in the wrong direction - by pressure on energy/fuel as well as key crops grown in the area. 

It would be very hard for the government to ‘make good’ in the way that they tried to do with Covid - in some senses perhaps we have got too used to thinking that the government can just ‘shake the magic money tree’ and make everything ok given all the handouts of the last couple of years. They can’t fix everything. This is likely to be a very painful period for UK households in the coming months.  

My advice - everyone should know how they stand relative to the ‘typical household’ that I’ve written about and that you see bandied about in the press.  No household is actually ‘typical’ - they’re all different, and understanding the personal impact on you is the first step.  At Nous, we’re building tools to help, but ultimately many households will have to make some very difficult decisions in order to balance the books.