Now the real economic pain starts: yes, it's 'worse-off Wednesday'

Economics Editor,Sean O'Grady
Wednesday 06 April 2011 00:00 BST

The longest squeeze in British living standards in almost a century intensifies today – which has been dubbed 'worse-off Wednesday' because it marks the beginning of a tax year in which tax increases and benefits and public-sector cuts will add to the misery already experienced by the millions struggling to cope with high inflation and minimal pay rises. Put simply, the 2011-12 fiscal year will be the first full year of Coalition cuts, and the one when the pain begins in earnest.

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The accountancy firm PricewaterhouseCoopers (PwC) calculates that households will be on average £1,000 worse off this year through the effects of higher taxes and price rises for daily necessities such as food, energy, clothing and petrol.

And research from the House of Commons Library suggests that the middle classes will be hit especially hard. A family with three children where each parent earns £26,000 will lose some £1,700 a year, and thousands more if their salaries fail to keep up with inflation. Even the Chancellor's concessions on fuel duty are being eaten up by higher inflation almost before they begin : rising world oil prices have already wiped out the 1p fuel duty cut announced in the Budget.

Only those on relatively low earnings will benefit from the single large tax concession today: the rise in the income tax threshold to £7,475. Around 1.1 million earners will gain from this, though they too are affected by January's rise in VAT to 20 per cent, increases in duty for alcohol and tobacco, and cuts in public services.

Normally the start of a new fiscal year would attract only the most cursory attention. However, the 2011-12 tax fiscal year marks the first full year of cuts by the Coalition Government – which so far has implemented only a modest £6bn worth. By contrast, this year will see some £41bn in tax increases and spending cuts, building to a total annual squeeze of £126bn in 2015-16 – the biggest in peace-time history.

National insurance rises, cuts to child benefit, to child care allowances, to tax credits and another 750,000 people being dragged into the 40p tax band are the most obvious hits to family finances; but many more subtle changes will also reduce spending power.

Of these, a move to increase annualy social-security benefits by the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) may eventually prove the most pernicious, as the CPI usually rises more slowly than the RPI. It will lead to a serious cumulative erosion of the value of benefits for the poorest: this year, most means-tested benefits will go up by 3.1 per cent rather than 4.8 per cent.

Other moves that will add to the pressure include: cuts to the amount parents can claim on childcare, which could amount to £1,500 for families with two or more children; the freeze in child benefit and its removal from the better-off in January 2013; and a steeper withdrawal rate for tax credits. All contribute to what Mervyn King, Governor of the Bank of England, has warned will be the longest squeeze on living standards since the 1920s.

As local councils prepare to maximise the savings by executing redundancies at the first available opportunity, the Local Government Association says that 140,000 jobs will go, adding to economic insecurity and with knock-on effects on the housing market and consumer spending.

PwC's chief economist, John Hawksworth, commented: "From the start of the new fiscal year, 6 April, there will be net personal tax rises and welfare benefit cuts that will add up to around £100 per household on average, on top of £950 lost to inflation. This will give a total squeeze of around £1,050 per household on average."

Analysts at Capital Economics added: "The next wave of the fiscal consolidation will hit households on 'worse off-Wednesday'. We expect the main measures will knock £2.3bn off households' incomes over the coming fiscal year".

The Bank of England will announce its latest decision on interest rates at noon today. Most analysts agree that the Bank will leave interest rates on hold at 0.5 per cent, but they also see a trend towards higher rates by next year. A return to a Bank rate of 1.5 per cent would add another £160 to the cost of the average mortgage. Meanwhile, pay settlements are typically running at 2 or 3 per cent – well below inflation, which is set to rise to 5 per cent. Public-sector workers on more than £21,000 will be subject to a pay freeze.

The Chancellor, George Osborne, announced in his Budget that all workers in the armed forces, prison service, NHS, teachers and civil servants earning less than £21,000 will have a pay rise of just £5 a week – 70p per day – a sum unlikely to make them feel better off.

The shadow Chancellor Ed Balls called it a "black Wednesday for millions of families across Britain". He added: "All this pain, all in one go, aimed at families with children, is not just deeply unfair, it will hamper our economy too."

Treasury Minister Justine Greening responded that ministers had "come up with a credible plan to reduce the deficit which is keeping interest rates lower and managing to ensure that the burden falls on those with the broadest shoulders".

Cuts watch: How austerity is changing lives in the UK

Funeral costs

With the cost of living soaring, it was only a matter of time before the cost of dying caught up. Local authorities that own graveyards and crematorium facilities have been forced to lift the raise of plots in a bid to help correct shortfalls in their budgets. Fees are going up by as much as 25 per cent in one part of the West Midlands. A reserved plot for one or more coffins in Dudley will soon cost £1,248, up by around 25 per cent on the current charge of £999, or around eight times the rate of inflation.

Swimming pools

Grade two-listed Tunstall Pool in Stoke is the earliest surviving example of a Victorian swimming baths. But last Thursday, after 136 years of public use, it was forced to shut for the last time to its 100,000 regular swimmers.

The move will save £82,000 from the budget of Stoke-on-Trent City Council which must find £36m or an 8 per cent spending cut. Free swimming for children and the elderly was one of the first casualties when it was scrapped by the incoming Coalition last June, and a £25m refurbishment plan for pools was also shelved. Britain's swimming pools have been falling into disrepair for many years, campaigners say.


April Fools' Day proved no laughing matter last week for many in the criminal justice system. Last Friday, 46 magistrates and county courts closed as part of Justice Secretary Ken Clarke's attempts to streamline the lower courts system in England and Wales. From Guisborough to Gravesend and Alnwick to Abertillery, local court users will now be required to travel to neighbouring towns and cities for hearings in both criminal and civil cases. A further six courts are due to shut later this month, starting with Retford, Nottinghamshire, magistrates court on Friday. In total 142 courts will close. Opponents claim that this will leave up to half of people in some areas more than an hour's travel from a court.


A stormy budget meeting at Leeds Civic Hall was interrupted by placard-waving protesters as the Labour-run council finalised cuts plans to meet a £90m shortfall. Among the proposals was the recommendation to axe 3,000 jobs from the council workforce.

When consultation ends, staff providing a range of services, including care homes and a homeless centre in the city, could be among 140,000 local government employees nationwide expected to be looking for a new position this year and next. The Local Government Association (LGA) revised its initial estimate of redundancies upwards by 40 per cent following last year's Comprehensive Spending Review.

Children's centres

John Lennon's widow Yoko Ono has backed the campaign to save the centre at the school he went to as a boy. The £1m Surestart centre at Dovedale School in Mossley Hill, Liverpool, is one of four children's centres facing closure in the city.

Ms Ono, 78, who helped to open the centre last year, said: "I know how much it is loved and well used by the parents and the children. I strongly support the campaign to keep the centre open."

The Daycare Trust charity estimates 250 Surestart centres could shut this year.


Southampton County Council has cut all funding from the 1,600 allotments in the city, pushing up rents for users.

A petition has been organised by the Southampton Allotment and Gardens Association, stating that the cut "would have far reaching consequences, not only for the mental and physical wellbeing of the city's residents but also for the city environment".

Allotments in the London borough of Merton are also facing a 40 per cent reduction in budget.

Elderly care homes

Leicester City Council is threatening to close six of its residential care homes for the elderly over the next five years, while its two remaining centres will be turned into short-stay support facilities.

Wendy Murphy has collected more than 500 signatures on a petition to save Cooper House, which has looked after her 86-year-old blind mother for two years. "The home has been fantastic. I feel as though I've got my mum back... I reckon they've put 10 years on her life," she said.

The number of elderly people denied a council-funded place in a care home or help from a carer has increased by 80,000 in the past year, according to the Care Quality Commission.


Last Saturday in a quiet corner of Middle England, Central Bedfordshire's mobile library stamped its last book. The decision to withdraw the service was not taken lightly by the local authority, but for the residents of outlying villages it means that the regular arrival of new reading matter to their communities will cease. Libraries have emerged as a soft target when it comes to finding ways of balancing council budgets – despite a rearguard action from leading literary figures. Estimates suggest that more than 10 per cent of Britain's 4,517 fixed and mobile libraries have either closed, left local authority control or are preparing to close.

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