Lower-income households set to be £500 poorer after chancellor's spring statement - thinktank

27 March 2025, 05:00 | Updated: 27 March 2025, 12:27

Lower income households are set to be £500 poorer due to benefit cuts and a weak economic outlook, a thinktank has found.

Living standards are on track to fall over the next five years for the poorest half of households, according to the Resolution Foundation's analysis of Wednesday's spring statement.

It said a fall of this scale had only been exceeded historically by the early 1990s recession and the 2008 financial crisis and fallout.

Its analysis was released against the backdrop of a backlash against the chancellor, with Labour MPs among those joining charities in warning that her decision to target welfare spending to bolster the public finances was a mistake.

Government figures showed three million families would be worse off.

In its latest assessment of the economy that accompanied her speech, however, the Office for Budget Responsibility declared that real household disposable income per person was expected to grow from next year to 2029-30, led by stronger wage growth as inflation started to fall.

But the country's independent fiscal watchdog said a global trade war could reduce economic output by 1%, under a worst case scenario, leaving Rachel Reeves's small headroom - cash set aside that was created by her spending cuts - at risk of being wiped out for a second time.

She was speaking just hours before Donald Trump revealed plans to target all car imports to the US with 25% tariffs.

Paul Johnson, director of the Institute for Fiscal Studies think-tank, said: "If you are going to have 'iron-clad' fiscal rules then leaving yourself next to no headroom against them leaves you at the mercy of events."

He warned that Ms Reeves could find herself soon at the centre of renewed tax hike speculation ahead of the autumn budget.

Poorest households worst hit

The overall impact of all tax and benefit changes taking effect in this Parliament will reduce the incomes of the second poorest fifth of households by 1.5%, compared to a 0.6% fall for the richest fifth, the foundation found.

The £4.8bn of welfare savings announced by Rachel Reeves will actually result in £8.1bn in cuts, it said.

"After accounting for the £1.9bn boost to the standard rate of universal credit, and the 'gain' from not going ahead with scored-but-never-implemented changes to the Work Capability Assessment, cuts to ill-health, disability and carer's benefits rise to £8.1bn in 2029/30, and will continue to grow over time," it calculated.

The changes to benefits mean there are "huge holes" in the welfare safety net, and the foundation called for transitional protections to prevent such sharp income shocks.

Ruth Curtice, the chief executive of the Resolution Foundation, said: "High debt servicing costs, weak tax receipts, and the need to reassure jittery markets meant the chancellor had to announce tax rises or spending cuts in her spring statement.

"She chose to focus the bulk of her consolidation on welfare cuts. These cuts have been justified on the basis of getting people into work, but it is questionable how much of a jobs boost they'll deliver.

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"After all, the bulk of the cuts are to disability benefits which aren't related to work, and the cuts take effect from 2026, three years before the government's employment support programme kicks into gear.

"While the OBR's [Office for Budget Responsibility] outlook for growth today got gloomier, it is far more optimistic about Britain's medium-term economic prospects.

"The chancellor will hope that reality catches up with the OBR, rather than the OBR falling back to reality, otherwise more tough choices await."

Ms Curtice added: "The outlook for living standards remains bleak. Britain's poor economic performance, combined with policies that bear down hardest on those on modest incomes, mean that 10 million working-age households across the bottom half of the income distribution are on track to get £500 a year poorer over the course of the Parliament."

(c) Sky News 2025: Lower-income households set to be £500 poorer after chancellor's spring statement - thinktank