Chancellor almost doubles cost-of-living support with two-thirds of fresh cash going to the poorest half of households

The Chancellor’s new £15 billion package of energy bill support almost doubles that announced earlier in the year and rightly fills the gap they left by prioritising those hit hardest by the cost-of-living crisis, the Resolution Foundation said today (Thursday).

Today’s package, which included a doubling of the universal Energy Bill Support Scheme to £400, one-off payments to means-tested benefit recipients worth £650, and top-ups for disabled individuals and pensioner households (worth £150 and £300 respectively), was progressive.

Twice as much of the £15 billion package is going to households in the bottom half of the income distribution as the top half. The average gains from today’s announcement are £823 across the poorest fifth of households, compared to £500 for the middle fifth of households, and £296 across the richest fifth.

The Chancellor’s approach of using the benefits system to target those hit hardest by the cost-of-living crisis is the right one, says the Foundation, and helps to fill the huge gap left in his previous two support packages, of which £6 in £10 went to households in the top half of the income distribution.

Taking all the three support packages together, the Foundation calculates that the Chancellor has provided around £1,200 of support to households, fairly evenly spread across the income distribution.

However, the overall effect of policies coming into effect this year – including the three support packages and previously announced tax rises – is much more progressive, delivering an average cash gain to households in the bottom quintile of £1,195, compared to £799 for households in the middle quintile, while households in the top quintile are set for an average cash loss of £456.

The Foundation notes the Chancellor’s decision to opt for lump-sum payments rather than a second mid-year uprating of benefits reflects delivery challenges and is likely to deliver more support on average. The one-off payments cost £1 billion more than bringing forward an expected 9.5 per cent uprating to October. It is also preferable to offering support via the Warm Homes Discount, but will create some rough edges and gaps in support.

First, there is a risk that families who come into the benefit system after cut-off dates for measuring eligibility – for example if they lose their job – may miss out on some or all support.

Second, some groups will do better from this package of lump-sum payments than others as the system of flat payments do not reflect the different levels of need within the benefit system or different levels of energy usage.

Those with a disability and pensioners face higher risks of fuel stress than a typical household, which the Chancellor has rightly addressed with extra top-up support. The payment to pensioners will involve significant deadweight (going to around 3.7 million pensioner households in the richest half of the population). However, this reflects the challenges of targeting poorer pensioners – two-thirds of pensioners in poverty do not receive Pension Credit, and would therefore miss out on the £650 payments.

The biggest group to lose out from the approach of lump sum payments versus benefits uprating are families with children, with large families facing the greatest risks of severe fuel stress this winter. Households on benefits with three children would have, on average, received £968 from 9.5 per cent benefits uprating in October, compared to £720 from the support announced today.

Torsten Bell, Chief Executive of the Resolution Foundation, said:

“The Chancellor has announced a big and very welcome package of support for households facing fast rising energy bills. It almost doubles the level of energy support to over £30 billion, and fills the huge gap in previous announcements with large targeted support for those hit hardest.

“The decision to provide one-off payments this year to poorer households, pensioners and those with a disability is a good attempt to target those with higher energy bills – although the relative lack of support for larger families stands out.

“The Chancellor’s commitment to uprate benefits next April in line with very high inflation also offers important security for lower income households that their living standards will be protected from surging prices tomorrow as well as today.”