New analysis by the Resolution Foundation suggests that low-income families with children will lose out the most if the UK Government uprates certain benefits by earnings growth rather than inflation in the Medium-Term Fiscal Plan on Monday, October 31,
The think tank said that nine million UK households containing 30 million people will be affected if benefits rise in line with earnings (5.5%), which the UK Government has been considering - seven million of those households contain someone in work. It said an uprating by earnings, amounting to a real-terms cut, would set the typical incomes of the poorest fifth of households back to levels not seen since 2000-01.
It added that this would represent an “unprecedented period of living standards stagnation” for millions of the poorest families. How much to raise benefits by is the latest issue that is dividing the Tory party, with the UK Government refusing to rule out giving benefits claimants a real-terms cut to their incomes.
Chancellor Kwasi Kwarteng will announce the Government’s decision during his Medium-Term Fiscal Plan on October 31.
Decisions on benefits uprating would usually be announced in November, and are based on the Consumer Prices Index (CPI) rate in September, with any change to come into effect the following April.
The Resolution Foundation analysis, The Long Squeeze, estimates uprating benefits in line with the recent earnings growth of 5.5% would save the Treasury £3 billion by 2026-27.
September’s CPI rate is expected to be around 10%.
Certain benefits must be increased in line with rising prices, these include:
- Personal Independence Payment
- Attendance Allowance
- Disability Living Allowance
- Carer’s Allowance
- Incapacity Benefit
- Adult Disability Payment
- Child Disability Payment
The UK Government may also increase other benefits if deemed appropriate, “having regard to the national economic situation and any other matters” considered relevant.
Benefits that fall into this category include:
- Universal Credit
- Child Benefit
- Jobseeker’s Allowance
- Employment and Support Allowance
- Income Support
Working parents who receive Universal Credit and Child Benefit would be hit the hardest and be set to lose almost £1,000 a year, the Resolution Foundation said.
A working single parent with one child would lose £478, and a working couple with three children would lose £978.
A couple with one child only receiving Child Benefit would lose £52 a year, while a single disabled adult on Universal Credit would lose £380.
Overall, some three million households are set to lose more than £500, it said.
The think tank projects that incomes for the poorest households will see a further significant fall next year - with prices expected to continue rising and temporary Government grants to help with energy and the cost of living set to end.
It says the income of a typical person in the poorest fifth of the population was already set to fall by 11% in 2023-24 - the biggest drop since records began in 1962.
This is based on uprating benefits by inflation, and is predicted to deepen to 14% if benefits are only uprated by earnings.
Adam Corlett, principal economist at the Resolution Foundation, said: “Plans to cut benefits like Universal Credit by uprating them by less than inflation could save the Treasury low billions of pounds, but reduce the incomes of nine million households. Working parents who receive Universal Credit and Child Benefit would be hit particularly hard, with some losing up to £1,000.
“These cuts would come at a time when families are already set to struggle with rising prices, soaring mortgages, and the end of temporary support schemes. With benefits having repeatedly failed to keep pace with inflation over the past decade, this would see real income levels for Britain’s poorest families fall to levels not seen since the turn of the century.”
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