Zahawi’s first day on the job coincides with a £6billion cut to national insurance, resulting in lower contributions for 30 million people. But it comes after the government broke its 2019 manifesto pledge and increased the national insurance rates earlier this year, meaning millions of people have been paying more tax over the last few months.
Poverty experts have also repeatedly condemned the government’s choice to let benefits levels fall far below the real cost of living. In April, benefits increased by just 3.1 per cent while inflation is currently at a record-high of 9.1 per cent. It was the single biggest cut in the value of basic unemployment payments for 50 years.
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Peter Matejic, chief analyst at the Joseph Rowntree Foundation, said: “The new chancellor has the opportunity to get on the front foot and stop this government lurching from crisis response to crisis response.
“With those on the lowest incomes already struggling after a decade of cuts and freezes to benefits, he must urgently address the fundamental inadequacy of our social security system. An immediate first step the chancellor can take is to stop the government deducting debt repayments from benefits at unaffordable rates.”
The JRF claims “the government is causing severe hardship by using the benefit system to collect some debts”. It is calling on the government to let families pay back their debt more slowly instead of deducting those funds from their benefits.
The government has announced that over eight million families on benefits will receive an initial cost of living payment of £326 on July 14. A second instalment of £324 will be sent to qualifying low-income households in the autumn. But experts are urging Zahawi to think beyond the emergency payments.
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Adam Corlett, principal economist at the Resolution Foundation, said: “The new chancellor will need to assess whether further emergency support is needed if high inflation stays with us for longer than expected.
“But he also needs to take a longer-term perspective on the economy, and devise a new economic strategy that delivers the stronger growth that Britain has lacked for far too long. Doing that means addressing our failure to raise pay and productivity levels, as well as building on Britain’s strengths as a services superpower.”
Economist Lukasz Krebel, of the New Economics Foundation, added: “The new chancellor should reform social security by increasing the current level of support, and provide everyone with a living income in the longer term. This would include increasing benefits above inflation to reverse earlier cuts and to align payments with the cost of living, scrapping the benefit cap, and removing the two-child limit from universal credit and tax credits to help larger families.
“The treasury should work with the Bank of England to support a ‘Great Homes Upgrade’ – a national retrofitting effort to insulate millions of homes in the next three years – providing public grants and zero per cent interest loans. This would help tackle inflation, which is in part driven by our reliance on expensive gas, and lower energy bills for good.”
Gavin Rice, policy director at the Centre for Social Justice, added: “The incoming chancellor should do everything in his power to reduce the cost of energy bills, including exploiting new domestic sources of energy and removing green levies from household bills.
“The pandemic saw the numbers claiming universal credit skyrocket. The chancellor should ensure that universal credit properly supports the poorest while also ensuring that he prioritises moving those who are able to work into the record number of vacancies, as being in work is the best defence against the rising cost of living.”