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Benefits and the state pension will see their largest increase in 32 years, new analysis has found, as Rishi Sunak declined to rule out more cost of living spending in the future.
The Chancellor’s promise to increase both state handouts by the inflation rate this September will cost around £15 billion, according to the Resolution Foundation think tank.
That will equal a rise of around 9.5 per cent from next April, the think tank concluded - a higher jump than any single year since 1991.
The think tank also found that the richest households will be close to £2,000 worse off as a result of Treasury changes this year, while the poorest will be more than £1,000 better off.
The analysis underscores that the new cost of living package announced by the Chancellor on Thursday is significantly progressive, meaning the most in need will get the biggest benefit.
During a round of interviews on Friday morning, Mr Sunak defended his decision to borrow to spend as well as adopting a windfall tax on oil and gas companies despite previous opposition to the policy.
Such moves have been branded traditional Labour policies by think tanks, with one Tory MP dubbing them “red meat for socialists” - though many others are supportive.
Pushed on why he was announcing a tax rise despite continually saying he wants to cut taxes, Mr Sunak responded: “I am first and foremost a pragmatist.”
He has argued that the Government cannot “sit idly by” and not protect people from soaring prices and energy bills, in what has been dubbed a cost of living crisis.
The Resolution Foundation analysis, published on Friday morning, shone fresh light on the package of measures revealed by Mr Sunak in the House of Commons.
His announcements included £400 off energy bills for every household plus payments of £650 for people on benefits, £300 for pensioners and £150 for the disabled.
To claw the money back a 25 per cent “levy” on oil and gas profits was announced, raising an estimated £5 billion for the Treasury - but meaning much more of the cost will be covered by new borrowing.
Boris Johnson expressed hope that the package of measures will see people through the cost of living crunch, "we think it will last until prices start to abate". But Mr Sunak did not rule out more spending to help with the squeeze.
The Resolution Foundation found that 82 per cent of this year's energy price rise will be offset by the Government - a huge fiscal intervention. That rises to 93 per cent for poorer households.
A line in the think tank’s analysis read: “The winter ahead will be a long way from easy for poorer households, but it will be a lot less grim as a result of yesterday’s package."
Analysis showed that the poorest fifth of households will on average gain £1,195 from the measures announced by Mr Sunak for this year.
By contrast, the richest fifth of households will lose an average £456. Breaking the numbers down further, the richest 5 per cent of households will lose close to £2,000.
In an interview with BBC Radio Four’s Today programme, the Chancellor insisted he was still a “fiscal Conservative”.
Mr Sunak said: "People can judge me by how I've acted over the last couple of years.
"I've always been prepared to respond to the situation on the ground, what's happening to the economy, what families are experiencing and making sure we've got policies in place to support them through that.
"In terms of 'is it one-off?', what's happening next year, I'd go back to what I said earlier. I do want people to be reassured and confident that we will get through this. We will be able to combat and reduce inflation, we have the tools at our disposal and after time it will come down."
He added: "First and foremost I'm a fiscal conservative, I believe it's incredibly important that I manage the country's finances responsibly. That means after suffering the shock we did to get our borrowing and debt levels back on a sustainable trajectory."
Mr Johnson said: “It’s a very considerable commitment to help the British people to do what we did in the pandemic -- put our arms around people, get them through the surge in energy prices. We think it will last until prices start to abate.”
Mike Brewer, the chief economist at the Resolution Foundation, said: “The Chancellor has delivered a bold and well targeted support package which, when combined with his previous support, will almost entirely offset the rise in energy bills for low-income families, as well as the majority of bill rises for everyone else.
"However, with the cost-of-living crisis extending well beyond fuel bills, households are still going to feel a tight squeeze over the coming year."