The Treasury Department has delayed financial support during the cost of living crisis, making sure that households will be able to use their savings to withstand the storm, Whitehall insiders said The Independent.
The money that people did not spend while indoors at the time of the pandemic was cited in discussions between Chancellor Rishi Sunak and his team as a key reason for limiting further government funding, sources said.
But the move was condemned by high-ranking officials involved in the talks, for ignoring poor families who have no savings and those who have spent everything they could to save.
“His team has no understanding of how difficult the situation is for those with the lowest incomes,” a source in Whitehall said. “They have nothing in the bank.”
Another insider said the approach underestimated the scale of the cost of living crisis – which led to the worst decline in real incomes since 1945 – and failed to eliminate sharp inequalities between rich families and their poor, income-dependent colleagues.
This was “especially evident for those households that do not work and receive benefits,” they said, adding, “The impact on these households is and will be very devastating.”
The government hoped consumers would feel encouraged by the prospect of abandoning pandemic restrictions, even as they face cost pressures, the source added.
“He relied on the idea that consumer confidence would be restored and people would start spending again; it’s the same logic as Eat Out to Help Out, ”they said.
News of the Ministry of Finance’s financial fluctuations comes after Mr Sunak was widely criticized for bypassing the needs of the poorest in his mini-budget in March.
A source close to the chancellor has denied allegations that he and his team expected people to spend their savings, and suggested that more help could come later this year for families in dire straits .
“Energy bills are limited until the fall. We do not yet know what the growth will be, given the price volatility we are seeing now, and it is right that we will wait until we find out how big the growth will be before deciding what the solution should be, ”they said.
Inflation has reached new 30-year highs in recent months, and is set to rise further with rising energy prices this fall. The cocktail of rising prices pushed Fr. closely monitored the index consumer confidence, compiled by GfK market research company, to -38 in April – the lowest level since 2008, during the great financial crisis.
Unusual savings habits during the pandemic blockade have affected Treasury thinking, sources said. Those with higher incomes were able to accumulate savings as they saw that their spending on social activities, travel and clothing decreased.
In 2020, this effect pushed household savings to levels not seen since the record began in 1963.
Households saved £ 72 billion in 2019 compared to £ 211 billion and £ 163.7 billion in 2020 and 2021, respectively, before taking into account inflation, according to quarterly reports from the Office for National Statistics, which provide the latest figures. According to the Swiss bank UBS, by the end of last year, household savings were equivalent to about 11% of GDP.
However, while high- and middle-income households have amassed a cushion, low-income households, which would normally seldom be able to save any money and face reduced incomes while on holiday, or continue to travel to work, do not were.
The balance sheet of households has also changed rapidly in recent months: savings have either been shifted from cash to less liquid assets such as housing or investment, or simply spent on coping with rapidly rising living costs.
“Not all of these savings are available for immediate use. This means that the buffer is smaller than expected from the next headlines, “said Anna Titarova, a senior economist at UBS, noting a study by the European Central Bank on the behavior of depositors in the eurozone. No comparative study by the Bank of England.
“Low-income households will be less secure,” she added, noting that this is important because “the propensity to spend is higher on income than on wealth.”
Economists have moved from hoping for a sharp and steady rebound after easing fears about the Omicron option to concerns about troubled forecasts.
“We’ve gone from relative optimists in savings history to pessimists,” said Andrew Goodwin, chief economist at Oxford Economics. Mr Goodwin does not predict a technical recession – two consecutive quarters of economic contraction – next year, but believes the risk of one has increased.
“We expect real incomes to fall by 2 percent this year,” he said. “That’s enough to get the consumer sector into recession this year, even if it doesn’t topple the whole economy.”
Starmer says Johnson is an “ostrich who puts his head in the sand” because of the cost of living crisis
Conservative observers have joined economists in criticizing the Finance Ministry’s decision not to increase benefits in line with inflation. The lag in how inflation is taken into account means that there has been a sharp decline in real support for welfare-friendly households – the biggest in 50 years, according to the Joseph Rowntree Foundation.
A Treasury spokesman said: “We recognize that individual households have had very different pandemic experiences, and many have saved less than usual, and we are closely monitoring this situation.
“These are troubling times – we have sincerely told the British public that we cannot fully protect people from the global challenges we face, but our £ 22bn package to ease the pressure is targeted at those who need it most.”
Treasury refers to households spending their savings on pandemic to survive cost of living crisis
Source link Treasury refers to households spending their savings on pandemic to survive cost of living crisis