Certain benefits could be hit by cuts if the Conservative government presses ahead with new proposals.
Jeremy Hunt was appointed Chancellor after Kwasi Kwarteng's mini-budget sent the markets into turmoil. The new Chancellor is set to unveil a Medium-Term fiscal Plan on October 31 - as Birmingham Live reports.
The Government is reported to be considering making savings by instead putting up some working-age benefits by the growth rate of average earnings, which is a far lower figure of 5.5%. An independent think tank warned this would permanently cut the real value of affected benefits by just over 4%.
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The Resolution Foundation said in a new report: "If the cuts affected working-age benefits, excluding protected benefits, they would affect 9 million households (7 million of which have someone in work) containing 30 million people, including a majority of working-age households containing children or people with disabilities.
"Losses would range from around £50 a year for one-child families getting only Child Benefit, to £1,000 or more for some parents on Universal Credit, with those in-work losing more in cash terms as Universal Credit's work allowances would (presumably) also be cut.
"Coming on top of substantial cuts in the 2010s, a new cut next year would leave the real value of basic out-of-work support 16% lower in 2023-24 than in 2010-11 (and slightly lower than 40 years earlier in 1983-84).
"And 2023 is a uniquely bad time to be cutting incomes. On our latest projections, even if all benefits are uprated in line with inflation, the real disposable incomes of the poorest may fall by 11% next year, the biggest drop on record and wiping out all income growth accrued over the past twenty years. If some were indexed only to earnings, the drop in income would be 14%
"The number of people living in absolute poverty is now projected to rise by 2.9 million between 2021-22 and 2023-24 and a real benefit cut would add another 600,000 people to this rise, including 300,000 children."
Which benefits could rise in line with earnings?
Some benefits do not have to be increased by law. These are:
- Universal Credit
- Child Benefit
- contributory Employment and Support Allowance
- contributory Jobseeker's Allowance
- Statutory Maternity/Paternity Pay and Maternity Allowance
- income-based Jobseeker's Allowance (JSA)
- income-related Employment and Support Allowance (ESA)
- Income Support
- Working Tax Credit
- Child Tax Credit
It's thought the above benefits would still get an increase from next April but most likely based on average earnings (5.5%) rather than inflation.
Which benefits are still set to rise in line with inflation?
The DWP is required by law to increase a range of disability and carers' benefits at least in line with inflation. These are:
- Personal Independence Payment
- Disability Living Allowance
- Attendance Allowance
- Incapacity Benefit
- Severe Disablement Allowance
- Industrial Injuries Benefit
- Carer's Allowance
- Additional State Pension
- Guardian's Allowance
- Attendance Allowance
This suggests all the above benefits would get a 10.1% increase from April 2023.
What about the State Pension?
In addition, the Government has several times said it will honour the triple lock system for pensions, which had been set aside in 2021. The triple lock means the State Pension must go up by whichever is highest of inflation, earnings or 2.5%
The Resolution Foundation says it believes State Pension "will almost certainly be increased in line with inflation in April."
However, the low-income pensioners' payment known as Pension Credit may not go up by the same amount. It's thought this, like some of the benefits mentioned above, will instead rise by 5.5% in line with earnings, although in some previous years the Guarantee Credit element of Pension Credit has had an above-earnings increase, so it's still unclear what might happen.
How would benefit payments be affected?
The Resolution Foundation said: "Uprating some benefits by earnings at 5.5%, rather than by CPI inflation at around 10.1% means that they would be 4.2% lower in 2023-24 than they would have been otherwise, and would remain permanently lower in future years.
"Compared to inflation uprating, Child Benefit would be cut by £52 a year for the first child and £34 for any subsequent children. The basic rate of Universal Credit for someone unemployed over 25 would be cut by £185 a year, while a single disabled adult on UC could lose £380. We assume that UC’s work allowances would also be under-indexed (increased by less than inflation) and therefore people in work would lose even more: a single parent in work with one child would lose £478, while a working couple with three children could lose £978 a year."
Income losses in 2023-2024 if benefits uprated by earnings instead of inflation:
- Family with one child only receiving Child Benefit - income drop of £52
- Family with two children only receiving Child Benefit - income drop of £86
- Single unemployed adult on Universal Credit - income drop of £185
- Single disabled adult on ESA - income drop of £324
- Single disabled adult on Universal Credit - income drop of £380
- Working single parent (with one child) on Universal Credit - income drop of £478
- Working couple renting (with two children on Universal Credit - income drop of £752
- Working couple not renting (with three children) on Universal Credit - income drop of £978
The Resolution Foundation concluded: "Overall, 9 million households (45% of working-age households) would face an income loss, containing 30 million people. Of those, 7 million households contain someone in work.
"Even among recipients of Universal Credit, many are in work: in September 2022, 2.2 million are in work, 1.4 million are unemployed, and 2.2 million are not required to search for work. Furthermore, a significant number of households would lose a particularly significant amount of money, with 3 million households (15% of the working-age total) facing an annual loss of over £500.
"Families with children are most likely be affected by these changes (due to the high proportion of families that receive Child Benefit), with 74% of couples with children and 95% of single parents facing income losses. Although social renters are the housing group most likely to be affected by these changes (with 79% at risk), it is still the case that 38% of households with mortgages are set to see income falls if benefit uprating is reduced – adding to their challenge of rapidly climbing interest rates.
"And, even though we have assumed that most disability benefits would be inflation-uprated, 63% of households containing someone with a disability are set to face falling incomes. Half of working-age households in the North East, North West, Yorkshire and West Midlands would lose out."
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