The war in Iran just cost your family £550 and Britain has run out of money to help

Britain’s typical working-age household is about to be £550 worse off this year, and the Chancellor doesn’t have the cash to soften the blow.

That’s the key finding of a new analysis from the Resolution Foundation, which is urging the Government to tear up its economic agenda and start again.

The £550 hit turns what would have been 1.2% income growth into a 0.5% fall, wiping out a year of gains for working families before the war’s wider consequences even land.

The bigger problem is what it does to the books. The Foundation’s modelling of the Bank of England’s middle scenario suggests the war could add £16 billion to government borrowing by 2029-30.

Rachel Reeves currently has £24 billion of fiscal headroom, comparable to what was available immediately after the Brexit referendum, which means she can technically absorb the shock without breaking her own rules. But there’s nothing left over for the kind of rescue package some MPs are clamouring for.

That hasn’t stopped the calls. Plenty of voices on both sides of the Commons want universal support for energy bills or eye-catching tax cuts to help the Government claw back ground after a brutal set of election results.

The Foundation’s answer is blunt: don’t. Universal handouts and populist tax giveaways are exactly what a cash-strapped Treasury can’t afford.

The reset the Foundation actually wants is harder, slower and politically uncomfortable. It involves picking three fights the Government has so far been reluctant to start.

The first is with the EU sceptics: extending alignment beyond food standards into chemicals and pharmaceuticals, and ultimately pursuing a single market for goods trade similar to the one Northern Ireland already enjoys.

The second is with the NIMBYs: building more homes in major cities, with a bigger role for the public sector and a targeted equity loan scheme that could put up to a million first-time buyers on the ladder.

The third is with the pensioner lobby: calling time on the Triple Lock once the state pension hits a defined ratio of average earnings.

Tax policy gets a similar makeover. Stamp Duty on homes comes down. Council Tax gets reformed properly rather than tweaked round the edges. The VAT registration threshold gets cut to stop small businesses bunching their turnover just below it.

And in the boldest swap, employee National Insurance falls while Income Tax rises, narrowing the gap that currently rewards anyone whose income comes from anywhere other than a payslip.

A generational argument

The argument running underneath all of this is generational. The Government has already spent big since taking office, with departmental budgets up £84 billion in 2029-30 and taxes up £70 billion, and the Foundation thinks the answer now is better spending rather than more.

The households that have taken the brunt of two decades of stagnation are working families and young adults locked out of the housing market, while a 40-year wealth boom has flowed largely to older and wealthier homeowners. The next round of choices, the Foundation argues, should reflect that.

The benefit system gets a look in too. The poorest working-age households are £1,800 a year worse off than they were in 2021-22, squeezed in part by housing support that’s been frozen while rents have climbed to near-record highs.

Closing that gap, the Foundation suggests, could be paid for by a small increase to the Universal Credit taper, meaning slightly less generous treatment as people earn more in exchange for a meaningful boost to those at the bottom.

Ruth Curtice, the Foundation’s Chief Executive, summed up the trade-off: “now is the time to truly put stronger growth and rising living standards first.”

That’s a polite way of saying the Government has spent the past year ducking the fights that would actually make a difference, and is running out of room to keep doing so.

Now read: The £78 billion hole in the UK that nobody wants to talk about