Government gives up to £1,650 handout to households, but does it go far enough?

Laura Suter
26 May 2022

Laura Suter, head of personal finance at AJ Bell, comments:

“Rishi Sunak’s bumper giveaway was far bigger than most expected, with an extra £400 for every household in the UK, £700 for pensioners and £1,050 for low-income households – on top of the £150 council tax giveaway that many have already received. 

“The maximum benefit a household can claim is £1,650*, which feels like a giant sum, and the lowest income households will get £1,170. However, to put that into context, between March and October this year average energy bills will rise by £1,523 – so for those households getting the largest handouts it still only leaves £100 spare to cover all the other cost of living increases.

“The windfall tax raising £5bn amounts to £180 of extra funding per household for the almost 28m households in the UK, so only provides a small portion of the handouts the Chancellor has announced today. If that money was split just between the 10m low-income households in the UK it would equate to £500 per household.

“The public called for specific and targeted support for low-income households and that’s what the Chancellor has delivered. What will be even better received is that some of that support will come straight away, rather than making people wait until later in the year to get the handout – helping those who are struggling right now.

“Even after the £400 energy bills rebate and the £150 council tax rebate, households who aren’t entitled to any other support are still going to have to find £973 extra to pay their energy bills this year – amounting to £5.32 a day. The reality is that many households are facing far higher increases in their energy bills, from those with larger families to those in more energy-inefficient homes.

“While the billions Mr Sunak has spread around the UK from today will help many of the most vulnerable, those who are just-about-managing but not reliant on benefits will still struggle to make ends meet. The blanket approach of handing out £550 to every UK household, including the highest earners in the UK, will surely face criticism when it could have been redirected at those low and middle earners struggling.”

Pensioners:

“Pensioners have literally been left out in the cold in the current energy crisis until now, with no specific support, despite spending a large proportion of their income on energy bills. The additional £300 in Winter Fuel Allowance is a simple way to target support directly at this group – but it’s not without its faults. The Winter Fuel Allowance is far from targeted support, as it’s handed out to every pensioner in the UK, regardless of income level – meaning many households will get the handout even if they don’t need it. 

“Those on pension credits will also benefit from the £650 handout to those on benefits, but this blanket one-off increase in the Winter Fuel Allowance is the Government’s way around helping the large number of people who don’t claim pension credit. Surely a longer-term fix for helping the chronic underpayment should be next on the Government’s to-do list.

“Pensioners will also breathe a sigh of relief after the Chancellor confirmed the state pension triple-lock will be reinstated from next year. The decision to abandon the earnings element of the triple-lock this year meant the state pension rose by just 3.1%, in line with CPI inflation in September 2021, rather than by 8.3%, the average earnings figure in July last year. The move cost someone in receipt of the full flat-rate state pension £486.20 this year.

“Retirees will now need to wait until September’s CPI inflation figure is published to find out just how much of an income boost they will receive next year. But if inflation remains high then it is likely to mean hundreds of pounds extra in people’s pockets in 2023/24.”


*Comprised of £400 energy bills rebate, £150 council tax rebate, £150 disability benefits top-up, £300 winter fuel payment and £650 for those on benefits.
 

Laura Suter
Head of Personal Finance

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.

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