Chancellor delivers a ‘Boris Budget’ – spending half of a £141 billion borrowing windfall to raise public spending and soften, but far from tackle, cost of living crunch

A major upgrade to growth and the public finances gave the Chancellor a £141 billion lower cumulative borrowing windfall (from 2022-23 to 2025-26), 46 per cent of which he used to raise public service spending and soften the cost of living crunch for low-income working families with a welcome £3 billion boost to Universal Credit (UC), the Resolution Foundation said today in response to the Budget and Spending Review.

The Chancellor delivered his Budget against a better backdrop for the economy – with GDP forecast to rise by 6.5 per cent this year, the fastest growth in nearly 50 years – but a deteriorating one for household finances.

Inflation forecasts were revised up significantly (peaking at 4.4 per cent in 2022, more than double the 1.9 per cent peak expected back in March), and growth in real household disposable income has been revised down sharply – from 1.4 to just 0.3 per cent next year. The Office for Budget Responsibility’s (OBR) medium-term forecast for household income growth has halved from a recent peak of 2.6 per cent at the end of its 2013 forecast to just 1.3 per cent in today’s forecast.

The Chancellor has used his borrowing windfall to increase public spending and soften, but far from tackle, this winter’s cost of living crunch, and the impact of the £6bn cut to Universal Credit earlier this month. The increased spending is frontloaded, with 63 per cent of the borrowing windfall spent next year before falling to 24 per cent in 2025-26.

The Chancellor used most of his borrowing windfall to reopen the Spending Review. Day-to-day departmental spending was increased by a further £25 billion in 2022-23, £19 billion in 2023-24, and £12 billion in 2024-25 (in addition to the over £12 billion a year of increases to health and social care spending announced last month). But the level of extra spending for unprotected departments is significantly lower by the end of the forecast period, with the reversal of cuts to international aid making up over two fifths of the extra spending.

The bulk of increased day-to-day public spending over the next three years will go on health and social care, which by 2024-25 will account for 46 per cent of all Whitehall-controlled day-to-day public spending.

The Chancellor also announced new support for working households on Universal Credit. Resolution Foundation analysis finds that the combination of the £20 a week cut to UC, the new package of support (the cut to the UC taper from 63 to 55 per cent, and the £500 a year increase to work allowances) and the rise in the National Living Wage will create winners as well as losers, but on average leaves the poorest fifth of households £280 a year worse off overall.

Looking at the impact of these measures – as well as wider changes to income tax, National Insurance, council tax and the updated outlook for prices and pay – on typical families, the Foundation’s analysis shows that:

• A single parent with` one child and housing costs of £140 a week, working 20 hours a week on the National Living Wage (£9.50 an hour), will be £5 a week worse off overall in April 2022 than they were in September 2021.
• A couple working full-time on 25th wage percentile (£10.91) and part-time (20 hours) on the NLW (£9.50) with two children and renting privately (with housing costs of £160 a week) will be £23 a week better off overall in April than they were in September.
• A typical earner on £29,000, with no children and not on Universal Credit, will be £6 a week worse off.
• An out-of-work single person on Universal Credit will be £19 a week worse off.

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

“The Chancellor has today delivered a ‘Boris budget’ by spending half of the large £141bn borrowing windfall that was handed down by the Office for Budget Responsibility.

“He’s used that windfall to spend significantly more, especially in the next few years. The lasting effect of that extra spending is to allow him to partially reverse some of his own decisions by reinstating cuts to aid spending, and increasing Universal Credit generosity for working claimants.

“But the forecasts contained far less good news for household finances. Higher inflation will all but end income growth next year. The Chancellor’s welcome reduction in the Universal Credit taper will soften, rather than tackle, the cost of living crisis facing millions of families across the UK today.

“The welcome £3bn boost to Universal Credit today will have offset some of the losses from the £6bn cut that took effect earlier this month. But while some higher-earning couples on UC are likely to be better off, the poorest families in the UK will still be far worse off over the coming months.

“The big picture is that the pandemic has made our economy smaller than we expected it to be. But the government is spending more because they have favoured a higher tax form of conservatism than many – including many Tory MPs – expected.”