Chancellor Jeremy Hunt’s Budget last week was billed by him as proof that the country had turned a corner with the good times still to come. But the reality is that as prices for essentials like food continue to rise, most of us will already be feeling squeezed – and if the official forecasts are even close to correct, that squeeze is going to worsen over the next two years. Incredibly, by 2028 the government’s own forecasts for household incomes suggest most of us will still be poorer than in 2008 – adding a further lost decade onto the one we’ve just crawled through.
Yet on the fundamental issue of the cost of living crisis – that pay is too low, and prices are too high – Hunt had little to nothing to say. The extension of the Energy Price Guarantee for three months is basically a good thing, although since it works to cap the typical household energy bill at £2,500, more than double its cost just 18 months ago, I doubt many of us will notice the impact.
Free childcare for one and two year olds is an excellent idea too, with British childcare costs now the highest in the developed world – but if it’s not available until 2025 it’ll make no difference today. And with massive problems of recruitment and retention in childcare, with low pay and insecurity chronic problems for care workers, alongside nursery closures across the country, a serious, long-term improvement in Britain’s childcare will need more investment than the government has currently pledged.
Otherwise, the Budget offered remarkably little on the central economic problem we’re facing. As Hunt spoke, hundreds of thousands of striking public sector workers were demonstrating in the streets outside Parliament. After taking account of inflation, the government’s own employees, from teachers to nurses to civil servants, have seen their pay decline horribly since 2010. Senior teachers, for example, are paid 13 per cent less than back then, taking account of inflation. And with inflation still at exceptionally high levels, their real term pay is going to be squeezed even harder over the next year.
The result of low and falling pay has been to add to the crisis in the NHS and across our public services. Quite understandably, however committed people may be to the public service, if they can’t afford to live they won’t be able to carry on doing the job. Teachers and nurses have been leaving in droves over the last few years, with now 46,000 nursing vacancies in the NHS, and it’s the low pay that’s forcing them out.
Hunt holds the purse-strings. If he wanted to stop the strikes and end the recruitment crisis across the public sector, he could have done it last week. The money is there. To match inflation across the public sector with a pay rise would cost an additional £18 billion – less than the £28 billion the public finances improved by over the last few months, according to the official figures. Or he could tax the richest – for instance by asking those people making capital gains when they sell shares or art to pay the same rate of tax as those who pay when they work. That small measure alone would bring in an extra £15.6 billion a year.
But Hunt didn’t do this. His only answer to the NHS recruitment crisis was, incredibly, a handout to some of the most well-off people in the country. The cuts to taxes on pensions amounted to a £4 billion bung to the very richest – those lucky enough to have more than £1.07 million in their pension pot, or paying £60,000 into it every year. Hunt claimed this was to stop senior doctors taking early retirement to avoid the extra taxes – but the official figures show only another 15,000 people are expected to continue working as a result of the change, not all of them even doctors. It’s a hugely expensive sledgehammer to crack that particular nut and this generosity to the wealthy contrasted sharply with the further tightening of benefits sanctions, despite all the evidence showing making life worse for the unemployed does not lead to more people finding secure, well-paying work.
Inflation is expected to come down this year, and on the official forecasts, come down quite rapidly – but forecasts can be wrong, and sadly those from the official Office for Budget Responsibility have tended to be too optimistic in the past. But however Hunt and others may try and spin it, it’s worth remembering that lower inflation doesn’t mean prices are falling. It means prices aren’t rising as fast. What the official forecasts say is that by the end of this year, price rises will be making you poorer less quickly than at the start. The view ahead is far from the sunny uplands Hunt wanted to promise. And the best way through a cost-of-living crisis is the same as it always has been: pay rises, matching or beating the rate of inflation, for all those in work.