Chancellor Rishi Sunak has just announced a raft of new measures to tackle the cost of living crisis.
With inflation already at a 40-year high of 9% (and 10.9% for households with the lowest incomes in the UK) and skyrocketing energy bills, there’s no question that the general population has been facing a serious squeeze on their budgets.
The government initially resisted calls to provide more help after Sunak’s spring statement was criticised for its minimal measures, but has since U-turned with this latest announcement.
Here’s how the experts think the Treasury’s news will actually impact people – and whether any of the actions goes far enough.
1. £400 extra for energy bills in a grant
What is it? Every UK household will now be able to get £400 for their energy bills. It was previously a £200 loan, but as a grant (which is double in size), it no longer needs to be paid back over five years.
The payment will be automatic on smart metres or go straight on direct debit and credit customers’ accounts. For those paying in a different way, they’ll receive it through vouchers.
This payment will be spread over six months for everyone.
It will also directly apply to households in England, Scotland and Wales. A similar amount should be handed to Northern Ireland, but the distribution method for that is yet to be announced.
What does it mean for you? While this will undoubtedly help the crisis, the average yearly energy bill has increased by £700 ever since Ofgem lifted the energy price cap at the beginning of April.
Then, from October, it is set to increase again by £800 – meaning a total increase of £1,500 for the average household for its annual energy bill.
The extra £400 alleviates this pressure, but does not remove it.
What have critics said? This particular measure was praised by MoneySavingExpert’s Martin Lewis, as it meant people no longer have to repay the money to the government, as Sunak initially outlined.
2. £650 payment for the worst-off households
What is it? Approximately eight million of the lowest income households will be sent a one-off payment of £650 if they are on Universal Credit, tax credits, pension credits and other means-tested benefits.
Means-tested is when your eligibility to claim money and how much you receive depends on your income and how much capital you have.
This money will go indirectly into people’s bank accounts in two lump sums, first in July, then later in autumn.
What does it mean for you? This money can go towards bills or living costs. With the average household facing an extra charge of £1,200 per year – and the lowest-income homes facing inflation of 10.9% – this could be a significant boost to help.
What have critics said? For some, this announcement was praised, with Save The Children saying it offers “breathing space” for those struggling.
Director of Generation Rent, Alicia Kennedy, also admitted that this package is “much closer to what people will need to manage rising prices” but pointed out that “one in three tenants have had rent rises this year”.
She added: “For renters living in homes where energy bills are included in the rent, such as shared houses, it is not clear if the landlord is under any obligation to pass this new support to them through a reduced rent.
“The government needs to clarify how it will ensure renters receive the package of support as the chancellor intended.”
She added that the local housing allowance is still frozen at 2019-20 levels, too, and has not risen with inflation.
The Social Market Foundation, a public policy think-tank, praised the announcements and said these were “the simplest and most effective way for the government to deliver much-needed help”.
Aveek Bhattacharya, the chief economist for SMF, said: “Having wasted months with over-elaborate schemes, it is extremely welcome that he has joined us in recognising that the best way to help struggling families is the most straightforward: give them cash they need to deal with higher prices.”
3. Extra payment for pensioners £300
What is it? From the autumn, eight million pensioner households will receive £300 to help pay for winter fuel in November or December.
Those on lower incomes who also receive pension credit will receive the £650 as well.
This one-off payment is alongside the Winter Fuel Payment, which is between £100 and £300.
What does it mean for you? For those born on 26 September 1955 or before, living in the UK for at least one day during the week of 20-26 September 2021, you qualify for this payment.
Alternatively, you can qualify if you live in Switzerland or a European Economic Area country, and you can prove you have a genuine and sufficient link to the UK.
People typically receive this money automatically and don’t have to apply for it.
What have critics said? The Centre For Ageing Better claimed earlier this year that an additional 200,000 people of pension age fell into poverty. In response to the announcements today, the non-profit said: “Greater efforts are needed to tackle the systemic issues that continue to push pensioners into poverty and erode the quality of people’s later lives.
“More than one in six people of pension age in the UK are in relative poverty and today’s announcements will only go some way to tackling this.”
4. One-off disability cost of living payment £150
What is it? This one-off payment of £150 for those living with disabilities may come on top of the payments Sunak has already announced.
What does it mean for you? Charities warned in March that the 14 million disabled people in the UK could be driven into debt because of the increased cost of living.
Charity Scope previously claimed disabled people are facing an extra cost of £583 due to the increase in energy bills.
What have critics said? Lewis said this was definitely good news, as those living with disabilities often have higher energy costs because they use extra equipment.
In response to Sunak’s announcement, Scope tweeted: “It’s significant to get this frank acknowledgment from the chancellor. But this targeted support support cannot be a one-off.”
The charity added: “One payment won’t do it. Long-term support is needed to counter the extra costs that disabled people face.”
What else do you need to know about these announcements?
It is important to note that these benefits do not counteract each other. People who receive universal credit and disability payments will still be able to receive both of the additional payments announced by Sunak this week.
These payments are partially from Sunak’s windfall tax on oil and gas companies which is a temporary levy. It should raise £5 billion over the next year. The Treasury will also have to use funds from elsewhere to manage these extra costs.
The cost of living is also still going up, with prices rising faster than they have done since the 1980s. Prices are not set to fall for the next year and beyond.
Energy bills are set to continue climbing far beyond what analysts had anticipated while food prices and fuel costs are also not going to decline any time soon.
The chancellor did admit that he could not remove the problem for everyone, but was trying to reduce general pressure.
What else could have been suggested?
Labour pointed out there were several other steps the government could have taken to help with the crisis.
This includes tackling the tax privileges those with non-domicile status enjoy, introducing an emergency budget, cutting VAT and stopping the young working people paying more for their National Insurance Contributions.