Growth Plan announced £45 billion a year of tax cuts

The Growth Plan announced £45 billion a year of tax cuts, of which £2 billion have since been cancelled, the Resolution Foundation says, and the resulting increase in government borrowing costs has significantly worsened the fiscal outlook¹. The government is due to publish a Medium-Term Fiscal Plan on 31 October that is expected to set out how it will get debt falling as a percentage of GDP¹.

The foundation says one option discussed to offset the impact of the tax cuts is raising some benefits in line with earnings rather than inflation next April¹. In May 2022, Rishi Sunak as Chancellor said: "I can reassure the House that next year, subject to the Secretary of State's review, benefits will be uprated by this September's CPI"¹. The foundation says this is the usual custom and practice and is what the Office for Budget Responsibility assumes in its fiscal projections¹.

Uprating in line with recent earnings growth of 5.5 per cent, rather than CPI inflation of around 10.1 per cent, would permanently cut the real value of affected benefits by an estimated 4 per cent, the foundation says¹. It estimates savings of around £5 billion a year if applied broadly to all benefits except the State Pension and Pension Credit, or around £3 billion a year for working-age benefits excluding those protected in legislation¹. It says the £3 billion saving could only be achieved by freezing some forms of support that were exempt from earlier benefit freezes¹.

The foundation sets out the losses it projects for different family types, compared with inflation uprating¹:

The foundation says 9 million households, 45 per cent of working-age households, containing 30 million people, would face an income loss, and 7 million of those households contain someone in work¹. It says 3 million households would face an annual loss of over £500¹. It adds that 74 per cent of couples with children and 95 per cent of single parents would face income losses, and that half of working-age households in the North East, North West, Yorkshire and West Midlands would lose out¹.

Why it matters for households

The foundation says the decision for 2023 has to be made shortly¹. It projects that even if all benefits are uprated in line with inflation, the real disposable incomes of the poorest may fall by 11 per cent next year, the biggest drop on record, and that if some were indexed only to earnings the drop would be 14 per cent¹. It projects that the number of people living in absolute poverty will rise by 2.9 million between 2021-22 and 2023-24, and that a real benefit cut would add another 600,000 people to this rise, including 300,000 children¹. It says a new cut next year would leave the real value of basic out-of-work support 16 per cent lower in 2023-24 than in 2010-11¹. The £400 Energy Bills Support Scheme will end in March¹.

What happens next

The Medium-Term Fiscal Plan is due on 31 October¹. The foundation says the government has made clear it does not intend to deviate next year from the triple lock, which would mean the State Pension is almost certainly increased in line with inflation in April¹. It says changing the uprating of benefits protected in legislation would require primary legislation, which commentators have viewed as unlikely to pass through parliament¹.