JRF - 400,000 people could be pulled into poverty by real-terms cut to benefits in April

From: Think Tanks
Published: Thu Feb 24 2022

The independent Joseph Rowntree Foundation is warning that a planned real-terms cut to benefits in April could pull 400,000 people into poverty.

  • 400,000 people could be pulled into poverty by real-terms cut to benefits in April
  • Nine million families who receive benefits due to low incomes will be 500 worse off on average due to inflation from April
  • Failure to act would make the Government responsible for a second cut to benefits in less than six months
  • Ensuring benefits keep pace with inflation would help fill gap left by inadequate energy price mitigation measures and prevent widespread hardship

New analysis reveals the stark consequences of the Government's decision to uprate benefits by just 3.1% in April, when inflation is forecast to hit 7%. This represents a real-terms cut to the incomes of some of the poorest families in the country at a time when the UK's main out-of-work support is already at a 30-year low following a decade of cuts and less than six months on from the 20 per week cut to Universal Credit.

Around nine million households on means-tested benefits due to low incomes, both in and out of work, will experience an average real-terms cut of 500 per year. Couple families with children in receipt of benefits due to low income will experience a real-terms cut of 720 per year, while the figure across all pensioner couples is 540 per year.

For families on low incomes, a reduction in the value of benefit levels that are already inadequate could not come at a worse time. Already, too many families are going without the essentials. The price of food and other basic items is rising, and the energy price cap could push the average bill towards around 2,000 from April, leaving many families deeply concerned about how they will manage to stay afloat.

The Government's temporary support package in response to rising energy bills has been roundly criticized for failing to target sufficient levels of support to those most in need, and for its use of a loan scheme which risks delaying rather than alleviating the pressure on household budgets. Following the energy price cap rise, families on low incomes face an average energy bill increase of 566 a year, meaning they will spend on average 16% of their incomes after housing costs on energy bills.[1] The mitigations consisting of the council tax rebate and rebate loan then claw-back will cover only 60% of the increase for the average low-income family, highlighting the risk of widespread hardship if further action is not taken.

The planned real-terms cut follows a 1,000-a-year cut to the incomes of households on Universal Credit last October, in the face of widespread opposition including by many Conservative MPs. While working families saw some extra support through changes to the UC taper rate and work allowance, this did not fully mitigate the impact of the cut for all working families. Those out of work, including people who have lost their job, those seeking work and those who are unable to work due to sickness, disability or caring responsibilities, saw no mitigation and are 20 per week worse off following the cut.

JRF is calling on the Government to uprate benefits in line with the Bank of England's February 2022 Monetary Policy Report forecast of 7% inflation by April as an immediate first step to help keep up with the rising cost of living. At the very least, uprating means-tested benefits by 7% would stop this real-terms cut to benefits and protect families on the lowest incomes from the worst impacts of rising costs. But this must go hand in hand with investment in the overall adequacy of social security support, particularly for those who are not in work or are unable to work, whose support is at a 30-year real-term low.

Peter Matejic, Deputy Director of Evidence and Impact at JRF said:

At a time when the case for support could not be clearer, the Government is choosing to further erode the value of benefits that are already wholly inadequate.

People on the lowest incomes have already experienced a decade of cuts and freezes, followed by an overnight cut of 1,000 last autumn. The decision not to uprate benefits in line with inflation represents another cut for millions of people whose incomes will now fall even further behind the cost of living.

There can be no justification for this. Our social security system should protect people from harm, not put them in danger. The government must change course and ensure that benefit levels reflect the higher rate of inflation we are all now experiencing. There is no doubt that a failure to do so will leave more people in our society unable to meet their most basic needs.

Company: Think Tanks

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