Biggest rise in benefits bill for three decades

Poorest will be £1,000 better off as richest lose out under Chancellor’s cost of living handouts

BENEFITS and the state pension will increase by their largest amount in 32 years, analysis has found, as Rishi Sunak declined to rule out more cost of living spending in the future.

The Chancellor’s promise to increase both state handouts by whatever inflation hits this September will cost around £15billion, according to the Resolution Foundation think tank.

That will equal a rise of around 9.5 per cent from next April, the think tank concluded – a higher jump than any single year since 1991. The think tank found that the richest households will be close to £2,000 worse off as a result of Treasury changes this year, while the poorest will be more than £1,000 better off.

The analysis underscores that the new cost of living package announced by the Chancellor on Thursday is significantly progressive, meaning the most in need will get the biggest benefit.

In interviews yesterday, Mr Sunak defended his decision to borrow to spend as well as introducing a windfall tax on oil and gas firms despite previous opposition to the policy.

Such moves have been branded traditional Labour policies, with one Tory MP dubbing it “red meat for socialists”. Many others, however, are supportive.

Pushed on why he was announcing a tax rise despite continually saying he wants to cut taxes, Mr Sunak responded: “I am first and foremost a pragmatist.”

He has argued that the Government cannot “sit idly by” and not protect people from soaring prices and energy bills.

The Resolution Foundation analysis, published yesterday, shone fresh light on the package of measures revealed by Mr Sunak in the House of Commons – including £400 off energy bills for every household plus payments of £650 for people on benefits, £300 for pensioners and £150 for the disabled.

A 25 per cent “levy” on oil and gas profits was announced, raising an estimated £5billion for the Treasury – but much more of the cost will have to be covered by borrowing.

Boris Johnson expressed his hope that the package of measures will help people through the cost of living crunch. But Mr Sunak did not rule out more spending to help with the crisis.

The Resolution Foundation found that, for most people, 82 per cent of this year’s energy price rise will be offset by the Government – a huge fiscal intervention. That rises to 93 per cent for poorer households.

“The winter ahead will be a long way from easy for poorer households, but it will be a lot less grim as a result of yesterday’s package,” the think tank noted.

The analysis showed that the poorest fifth of households will on average gain £1,195 from the measures announced by Mr Sunak for this year. By contrast, the richest fifth of households will lose an average £456. The richest 5 per cent will lose close to £2,000.

In an interview with Today on BBC Radio 4, the Chancellor insisted he remained a “fiscal conservative”.

“I’ve always been prepared to respond to the situation on the ground, what’s happening to the economy, what families are experiencing and making sure we’ve got policies in place to support them through that,” he said.

“In terms of ‘is it one-off?’, I want people to be reassured that we will get through this. We will be able to combat inflation, we have the tools at our disposal and after time it will come down.”

He added: “First and foremost I’m a fiscal conservative, I believe it’s incredibly important that I manage the country’s finances responsibly.”

The Prime Minister said: “It’s a very considerable commitment to help the British people, to help them get through the surge in energy prices. We think it will last until prices start to abate.”

Mike Brewer, chief economist at the Resolution Foundation, said: “The Chancellor has delivered a bold and well targeted support package which, combined with his previous support, will almost entirely offset the rise in energy bills for low-income families.

“But with the cost of living crisis extending well beyond fuel bills, households are still going to feel a tight squeeze.”