Poorest will benefit most from chancellor’s financial aid

Twice as much of the £15 billion cost-of-living support package, announced by Rishi Sunak on Thursday (26 May), will go to the poorer half of households than the richest 50%, analysis of the measures has shown.

The Resolution Foundation think tank said households in the lower half of the income distribution scale will benefit from two thirds of the additional support awarded by the chancellor of the exchequer.

It said average gains from the announcement are £823 across the poorest fifth of households. This compares to £500 and £296 for the middle and richest fifths respectively.

This compares to the chancellor’s previous measures to address the cost-of-living pressures, which saw £6 in every £10 go to households in the top half of the income distribution.

Thursday’s announcement will see more than 8 million households, receiving universal and pension credits together with those on other legacy benefits, pocket a new, one-off payment of £650.

Pensioner households and individuals receiving disability benefits will receive separate one-off payments of £300 and £150 respectively.

The energy bills discount is also being doubled from £200 to £400 and has been turned into a grant that will no longer have to be repaid, further easing pressure on poorer households’ future finances.

The foundation said the chancellor’s decision to award support via lump sum payments rather than by uprating benefits levels is likely to deliver more support on average for households.

The one-off payments work out at £1 billion more than if the government had brought forward by six months to October an expected 9.5% inflation-linked uprating of benefits and universal credit.

However, it said some will do better from this lump-sum approach because a system of flat payments does not reflect different levels of need or of energy usage.

Households on benefits with three children would have received an average £968 from a 9.5% uprating of benefits in October, compared to £720 from the support announced on Thursday.

The top-up payment for pensioners will, however, help address the challenges of targeting poorer pensioners, two-thirds of whom would miss out on the £650 payments because they do not receive pension credit, the foundation stated.

Torsten Bell, chief executive of the foundation, said: “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.”

However, Jess Ralston, senior analyst at the Energy and Climate Intelligence Unit said that while the package’s one off payments to the most vulnerable will help to ease worries about energy bills this winter, the lack of a plan for home insulation was a “glaring omission”.

She said: “Temporary solutions are a sticking plaster, and all estimates show gas prices will be high for years to come, so investing in insulating our leaky roofs and walls makes the best long-term use of taxpayers’ money.

“Reforming the energy market to detach expensive gas from wholesale electricity price is a logical, necessary step that will drive down bills, especially given how much cheaper wind and solar generation is today.”