Did the Budget deliver for people in debt?
Our Director of External Affairs, Jane Tully, shares her reflections on the Chancellor's Budget
Posted October 28, 2021
Our Director of External Affairs, Jane Tully, shares her reflections on the Chancellor's Budget.
Yesterday saw the Chancellor deliver his second Budget of the year, the third in his 20-month tenure. When he took on the job in February 2020, few could have predicted the economic impact the pandemic was about to have.
As the Chancellor spoke, he signalled a desire to move on from the large-scale pandemic support schemes and get back to his fiscal roots, as he celebrated better than expected growth and a lower forecast of unemployment. However, with inflation expected to average 4% next year, rising energy and food prices and concerns about the overall cost of living, it’s clear there is a tough winter ahead. In this context, what did we learn from the Budget, and what did it do for people in, or at risk of, problem debt?
1. A clear focus on raising incomes of the lowest-paid workers…
It might have been the last announcement of the hour-long speech, but for many people we support, it was the most significant: an 8% cut to the Universal Credit (UC) taper rate.
The taper rate dictates how much of your earnings you can keep while on UC. Until now, the taper rate was 63% so for every £1 you earn, your Universal Credit reduced by 63p. The rate cut to 55% means people will keep 45p in every pound they earn, rather than 37p.
The change, coupled with increases to UC Work Allowances and the National Living Wage, creates a vital pay boost for low-paid workers; an essential move given the rising cost of living.
However, the taper rate change doesn’t help people who are unable to work due to illness, disability or because they’re caring for someone – or people looking for work, for example after losing their job due to the pandemic; all of whom have recently seen a £20 cut to their Universal Credit entitlement due to the much publicised – and contested – end of the UC ‘uplift’. Without increased support, many people in these groups could face real financial hardship.
2. … but no help for energy bills
Despite initial speculation, in recent days it became clear that the Chancellor was not planning to cut VAT on energy bills in response to rising prices. Some had suggested this would be poorly targeted help, while others had questioned the climate credentials of such a move.
That the Chancellor didn’t include it was therefore perhaps not a surprise. The fact there was no other help for people struggling to pay their gas and electricity bills was more unexpected. Indeed, the Chancellor went out of his way to say he did not think the government should step in “every time prices rise” – arguably seeking to signal a change in approach from the height of the pandemic, where vital support schemes helped keep people out of financial difficulty.
That may be the Chancellor’s view for now. However, with the worst arguably still to come, we cannot ignore the energy affordability crisis facing millions of households.
Among the people we help at National Debtline, energy arrears have been rising steadily since April 2020. In August 2021, they reached the highest level we’ve seen in two years, with a quarter (25%) of our clients in arrears.
A similar trend is being seen at Business Debtline, where almost one in five (19%) of our clients have energy arrears – up from 14% in April 2020.
When we consider that the impact of price rises this winter is yet to fully hit, and that a further large price hike is expected next April, the picture is very worrying.
We’d like to see further help for people on lower incomes struggling to pay – for example through the Warm Home Discount scheme – as well as protection for people who do fall behind, ensuring they are able to repay arrears affordably over time.
3. A recognition of ongoing challenges for businesses with premises, but for others it’s back to ‘business as usual’
Many small businesses and self-employed people are still feeling the impacts of the outbreak on their income and business finances. “Coronavirus” remains the most common reason for financial difficulty among callers to Business Debtline.
The Budget included some welcome measures, such as scrapping the planned increase in business rates for 2022, introducing a business rates improvement relief to allow improvements to business property without increased rates, and the 50% cut in business rates for those in hospitality, retail and leisure. All of this is positive.
However, for those without business premises who are still struggling to recover from the impact of Covid-19 on their business and income, these announcements offer little help. With the end to other business support schemes and pandemic debts such as Bounce Back Loans being called in, it’s a challenging time for many small businesses.
Next month, we’ll be releasing new research examining the ongoing impact of Covid-19 on self-employed people and setting out what support they need to recover. In the meantime, you can read more about Business Debtline callers experiences during the first stages of the pandemic in our Back to Business report.
4. A £12 billion council tax rise could put further pressure on household budgets
Over the past decade, callers to National Debtline struggling with council tax arrears have doubled. As of March 2021, council tax arrears in England stood at a record £4.4 bllion, and our research found that over seven million people in Great Britain (14%) are worried about being able to afford their council tax bills over the next year.
It’s significant that, tucked away in the OBR’s forecast is an estimate that council tax bills will be £12.1 billion higher by 2026-2027 (a rise of 33%) as councils raise bills to pay for social care and other services.
There has been welcome support during the pandemic, including through Hardship Funding which has – on average – reduced council tax bills by around £150 for households receiving local Council Tax Support. However, that support is due to come to an end in April 2022.
With the prospect of further rises in bills, it is more important than ever that government invests in local Council Tax Support schemes, and reforms collection practices to make them fairer, and more in line with best practice in the private sector. You can read more about what we want to see change in my colleague Grace’s blog from earlier this year.
Looking ahead…
The UC and Living Wage changes will undoubtedly relieve the pressure on some households, and go some way to easing the immediate cost of living challenges. However, perhaps this Budget is perhaps best characterised by what wasn’t said - by missing announcements on energy bills, on help for self-employed people still struggling to recover from the pandemic, and support for people who have fallen into debt.
Without this, and given the impact of the recent £20 cut to Universal Credit, we remain concerned about the Winter ahead. Almost two in five (37%) of National Debtline clients currently have a ‘deficit budget’ – meaning their income is not enough to cover their essential costs, like rent, energy, council tax and food. Increasing incomes is ultimately key to tackling that challenge - but until this is extended to all households living on low incomes, we can expect to see many people continue to fall into debt, and that isn’t good for individuals or the wider economy.
Jane Tully is the Trust’s Acting Deputy Chief Executive and has served on the charity’s Senior Leadership Team since 2014. She leads our work on policy, communications, marketing and research. She previously worked for the Charity Finance Group, Charity Commission, NSPCC and local government. View all posts from Jane Tully.
