A weekly food shop capped at £40. An energy bill of about £200 a month. A council tax bill of £200 that will not move. A car that costs £750 a month in finance, insurance, fuel and tax. A personal allowance of £12,570 that one household wants lifted to £16,000. A litre of fuel taxed at 57.95p, a rate unchanged since March 2011. A weekly income of £241 that lands three pounds on the wrong side of a £238 threshold.
Each of those figures belongs to a household. Not one of them was set by the household that pays it.
On Wednesday, Chancellor John Healey presents his first Budget. Unusually, very little of its contents has leaked in advance. The question the day will answer is who carries which cost, and for how long.
The Money That Leaves Before Anyone Decides
Chloe is 40 and is raising her 16-year-old son alone in a housing association maisonette in south London, four years after her husband died. The rent is subsidised, and she is clear that this matters. It is still one income where there used to be two: “Two incomes make a massive difference.” [1] That sentence is the whole of her budget in miniature. A single wage does not halve a household’s fixed costs; it meets them at full price. Council tax is the clearest example — a banded charge on a property, billed whether one person lives there or four, and in her case a £200 council tax bill she cannot reduce. Energy is the second: a standing charge plus a unit rate, and the standing charge does not shrink because there is one adult instead of two.
Her gas and electricity now run at about £200 a month, up sharply over the past year. The household has responded the way households do, by managing what can be managed. The hot water runs for fewer minutes while the dishes are done. The weekly shop is held to £40. Trips to M&S and to the cinema have gone. None of that is a policy; it is the substitution of attention for money, and it has a limit. Medicines for her rheumatoid arthritis and her other conditions are not a line she can schedule away, and the council tax bill does not negotiate either. She works full time and does not claim benefits, which is why her request is aimed at the tax line rather than at a new payment: “I don’t access benefits but I work full-time and it’s hard. Can the government do anything else to help? Something on our tax bill perhaps.” Robert Portlock, 29, has always lived with his parents in Gateshead and would like to leave. The obstacle is not a deposit but the rent: a small flat in his area would take about two-thirds of his monthly wage before any other bill arrives. He has run the rest of the sum himself — council tax, energy, food, a television licence, broadband, the car, and something left for a social life. His conclusion: “Council tax and energy bills would add to it. Food too. I’d need a TV licence, broadband, my car and some money to socialise. By that point I’d be in the minus.” [1] The car is not a luxury in that calculation. His job at Newcastle Airport is a 32-mile round trip away, and the vehicle costs him £750 a month once finance, insurance, fuel and tax are added together. His ask of the Chancellor runs in two directions: cut fuel duty and income tax, or raise the personal allowance — the slice of income on which no tax is paid at all — from £12,570 to about £16,000. A higher allowance is a quiet instrument. It never appears on a payslip as a payment, only as a slightly smaller deduction.
Dave Herbert, 48, works as a professional driver, moving cars between showrooms and making deliveries, and lives in Ynysddu. His commute into Cardiff is a 62-mile round trip. Petrol costs him about £350 a month for work and personal use combined, which he puts at 40% to 50% more than at the start of the year. He is married with a 12-year-old daughter, and the difference has to come out of a budget that was already tight. He would drive a hybrid, but even an entry-level used one is beyond reach. His preferred measure is a sharp reduction, or a temporary removal, of fuel duty. The main fuel duty rate has been frozen at 57.95p per litre since March 2011. “It sounds like they’re giving us something by keeping it frozen but they’re actually still taking it off us.”
The Gate Costs More Than the House
Emily Nelson, 19, finished her A-levels in Swindon last year and has not found work since leaving college. She wants to be an animator. In the meantime she applies for retail roles, sales roles and apprenticeships, and most of the time nothing comes back at all: “I’m trying my best, it’s all you really can do. It’s kind of suffocating in a way. You see everyone else managing, and you feel like you’re not.” Her proposals follow from it: more funding to businesses so that they can take on more young employees, more money for training, and a longer reach for the Jobs Guarantee.
That scheme, being rolled out across England, Scotland and Wales, guarantees fully funded, six-month paid jobs for 18 to 24-year-olds who have been on universal credit and looking for work for 18 months. Universal credit is the means-tested payment for people on low incomes or out of work; the 18-month condition is a clock, and the clock is what Emily would change, making people eligible after a year. There is a question inside that proposal which the design of the scheme does not answer on its own. Shortening the waiting period widens the group that qualifies, and widening the group does not by itself add a single funded post. Whether the change would create placements or only redistribute the same six-month places among more applicants depends on whether the money follows the eligible person or sits in a fixed pot. A Budget is precisely the document in which that distinction stops being theoretical and becomes a number.
The other gate is housing, and it has its own threshold. The government has announced a scheme to help first-time buyers in England who have a deposit of 2.5%. A smaller percentage lowers the sum needed at the point of purchase, which is a genuine change to the entry price. It does not manufacture the surplus out of which that sum has to be saved. Robert Portlock’s verdict on the wider project is blunt: “Saving for a house is impossible at the moment.” His monthly arithmetic — rent at two-thirds of pay, a car at £750 — leaves no line from which a deposit could be accumulated, so a cheaper ticket to a house he cannot yet afford changes the size of the barrier rather than its existence.
Jonathan Whitwam, 52, works in finance, lives in Essex and recently joined the Labour Party. His mortgage is not his largest outgoing. That position is held by his two daughters’ university costs: he and his wife pay their rent, around £18,000 a year. Both will begin working life with between £45,000 and £60,000 of debt each, plus interest, which compounds at £5,000 to £8,000 a year. Compounding means the charge is added to the balance before any repayment reduces it, so the figure grows by more than the borrower pays down. “I have no objection to paying for degrees as I think they are a great way of broadening horizons and having great life experience. But I think the interest should be waived or capped below 1%, otherwise it’s a noose around their neck for a substantial part of their lifetime.” [1] A cap below 1% attacks the compounding rather than the principal, and that distinction shapes the public cost: forgiving a flow of interest is not the same expense as writing down a stock of debt, even when both relieve the same graduate.
Who Pays, and What the Room Can Afford
Christine Morris, 78, has been retired for eight years and lives in Worksop on a state pension combined with a small private pension her late husband left her. “It is very difficult to balance the books.” She still takes a holiday, but she is spending more of her savings in order to live, which is a slow way of converting a stock into an income. Her circumstances sit at the edge of three separate mechanisms, and all three edges are sharp.
The first is pension credit, a means-tested benefit for people who have reached state pension age and are receiving £238 or less per week. Christine receives £241. Three pounds a week is the entire distance between her and eligibility, and that distance is created by the existence of a line rather than by any judgement about her need. Thresholds are administrative conveniences with political consequences: someone always stands just above one. The second is the standing charge, the fixed daily sum that falls due whether or not anything is switched on, so a household of one carries it alone. The prime minister has asked ministers to look at removing standing charges from gas bills. Christine argues the relief should extend to electricity, where standing charges are typically higher and a single occupant gets no discount for using less.
The third mechanism is the pension formula itself. Andy Burnham has pledged to end the triple lock so that, from 2030, the state pension rises by at least inflation or 2.5%, with the money saved used to create a free-at-the-point-of-use national care service for England at some point in the next parliament. Christine is unconvinced. Her reasoning is about timing rather than principle: a service of that scale will take years to arrive, and in the interval she expects to receive less pension while paying the same for whatever care she needs. That is the standard risk in any swap of a cash entitlement for a promise of services: the cash reduction arrives on schedule, and the service arrives when it arrives.
Jonathan Whitwam would accept higher taxes on higher earners and names the purpose as redistribution. He also proposes a one-off wealth tax on people with assets worth over £10m, and new taxes on the oil and gas sector and on banking. “If we want better roads, hospitals, schools we need to raise more tax.” That is one side of the ledger, and it is the side a Budget speech can describe most easily. The other side is the price of the money itself. Government borrowing costs are at historic highs, which changes what any given tax rise buys.
Christine Morris will follow the pension announcements from Worksop with £241 a week coming in and a threshold £3 below her. What changes on Wednesday is not the arithmetic of her week. It is that the arithmetic gets read aloud, in public, by the person who can move the line.