Spring Budget: Four ways the Chancellor could help households move out of the red
By Fiona Hughes (Senior Media & PR Officer) and Adam Butler (Public Policy Manager)
We’re days away from this year’s Spring Budget, and all eyes are on the Chancellor as he’s set to deliver what could be this government’s final financial statement before a general election. Charities like StepChange and others in the debt advice sector are watching closely to see any signs of support for households facing financial hardship, who continue to struggle with the cost of living.
With news that the energy price cap is dropping by just over 12% this April and inflation has fallen to 4%, on the surface it may appear like the worst pain has passed. Yet we know that ongoing and increasing pressures will cast a long shadow for those with the least financial security.
Take energy debt among our own clients seeking debt advice, for example: while the price cap began coming down last year, the amount of energy debt per client grew by 27% from £1,608 in January to £2,050 in December 2023.
In a similar vein, the average amount of income a new client had available to pay towards their debts after essential outgoings gradually declined throughout the year. At the start of 2023 it was £27. By Q4 2023, it stood at just £7, with a third of clients in a negative budget. You can read more about how this limits options for dealing with a client’s debts in our previous blog.
The truth is that financial resilience for UK households was already low prior to this crisis, with cost of living pressures further eroding people’s ability to cope with financial shocks. Inflation slowing and energy prices falling does little change that reality.
The Government has an opportunity to give people a chance to not only move out of the red, but to build up all important financial resilience through Wednesday’s budget.
Here are our top asks to the Chancellor:
1. Urgent action to prevent destitution
The potential end of cost of living payments leaves those who receive means-tested social security facing a significant drop in support. Without those payments, levels of support for working age adults will be close to the lowest level in real terms since the 1970s. For those like our clients who are dealing with life events like losing their jobs or falling ill, this means facing the very real risk of hardship and destitution.
We have called on the Government to take urgent steps to improve the adequacy of the social safety net to prevent hardship by ending unaffordable deductions from Universal Credit to repay debts owed to government. This means limiting deductions for government debts to 5% of the standard allowance and the total amount of all deductions to 15% of the standard allowance. This is a practical step for government and for those affected, it would protect up to £60 a month of additional income.
Beyond the Spring Budget, a wider package of urgent support will be needed to lift social security payments closer to an adequate level: almost half of StepChange’s clients receiving Universal Credit have a negative budget.
In the short-term, beyond reducing deductions, there are two ways to make a quick difference to those at most risk of hardship. The first is to remove caps like the two-child limit that break the link between need and support for larger families, which national evidence shows are increasingly at risk of hardship and tend to be over-represented among StepChange clients. The second is to invest in increasing the Universal Credit standard allowance, which is the core payment made to all households that receive support, but is particularly important to those without children, and falls well short of adequacy.
2. Extend the Household Support Fund
The Household Support Fund provides crisis support to financially vulnerable people struggling to cover essentials like food, energy or clothing. StepChange, along with many other charities, is concerned that the funding is due to end on 31 March 2024.
Without access to emergency grants, people have no choice but to try and borrow — often turning to high cost credit — or go without essentials. This in turn deepens hardship as people struggle with debt repayments.
Ending the HSF would withdraw crucial local help for those in the most severe financial difficulty at a time when it has never been needed more: we need to see the fund extended for at least a year and ultimately put on a permanent basis.
3. Help to repay energy arrears
Ofgem pointed out last week that energy debt has reached a record £3.1 billion. The price cap may be falling but millions of people have built up significant arrears which for many will be impossible to repay without support. To protect households from escalating debt, the Government should set up a ‘Help to Repay’ scheme to write off energy arrears for those who cannot afford to repay. To prevent new arrears from arising, this should be followed as soon as possible by the development of a social tariff for energy to end fuel poverty in the UK.
4. An effective council tax support scheme
One in three StepChange clients has council tax arrears, reflecting just how difficult it is for many to keep up with a tax set to rise above inflation again in April. A more unaffordable bill increases our concern that more people will face enforcement by bailiffs still not covered by a statutory regulator. This problem can be addressed at source by increasing the affordability of council tax by introducing an effective Council Tax Support Scheme, and equipping local councils with the tools to offer forbearance and relief for those struggling with bills.
