Dr. Karina Doorley:

I will kick off on the question about one-off payments. We conducted a post-budget analysis last year where we looked at the effect of all the direct and indirect tax and welfare measures in the budget on household incomes, and we split out the permanent from the temporary measures because we felt that if we are thinking about the long-term evolution of the tax and welfare system, it is the permanent measures we want to look at for long-term forecasting. As for the temporary measures, of course, in the early stages of the cost-of-living crisis, there was a really good case for them because we had no idea how high inflation was going to go. We argued last year, and even in the previous year, that the case for one-off payments was becoming much less clear and that, instead, policymakers should focus on permanent changes because inflation was not going away. It was coming down but the cost of living was still high. When we looked at the effect of permanent versus temporary measures last year, if we take the four budgets between 2020 and 2024 and exclude the temporary payments, low- and middle-income households were, on average, worse off compared with what they would have been with a budget that kept their real incomes constant and evolved in line with income growth, whereas high-income households were not because there were several above-inflation increases to tax credits, bands and so on.

A question arises, therefore, as to what happens when we get rid of the temporary payments. Do we have some sort of compensation or catch-up mechanism for low- and middle-income households to restore their standard of living? There is no clear indication that is going to happen. It seems there will be more one-off payments this year, but we would like to see a plan for benchmarking social welfare payments to something that appears reasonable and is linked to a standard of living and then looking at either indexing them from there based on price growth or at least comparing what policymakers are going to do to an index benchmark such that we will see where the real gains and losses are.