Freezing working-age benefits next year could save the Treasury more than £4 billion but at a “terrible cost” of plunging an additional 400,000 children into poverty, a think tank has warned.
The Resolution Foundation said its research suggested that scrapping the uprating of working-age benefits in line with prices inflation next year would reduce the incomes of nine million households by an average of £470.
The move, reportedly under consideration by the Chancellor, would also push an additional 400,000 UK children into absolute poverty, it said.
In calculations published in a briefing document on Saturday, researchers at the foundation said such a decision could save Chancellor Jeremy Hunt as much as £4.2 billion in what is likely to be his final Budget in the spring before a general election.
This policy could save the Government up to £4.2 billion, but it would come at a terrible cost— Lindsay Judge, Resolution Foundation
Mr Hunt is under pressure from right-wing Tory MPs to come up with tax cuts before the UK goes to the polls.
According to reports last month, Treasury officials were said to be considering real-terms benefits cuts as part of cost-saving options being drawn up in time for the autumn statement in November.
The Consumer Prices Index (CPI), a measure of inflation, figure for September — due to be published on Wednesday — is what ministers traditionally base any April rise in working-benefits on.
According to the Office for National Statistics, CPI in August was 6.7%, with the September rate likely to have been similar.
Lindsay Judge, research director at the Resolution Foundation, said: “The Government is reportedly considering returning to a tried-and-tested way of saving the exchequer money, by not uprating benefits in line with prices next year.
“This policy could save the Government up to £4.2 billion, but it would come at a terrible cost – reducing the disposable incomes of nine million families by an average of £470 a year and plunging up to 400,000 more children into poverty.
“At a time when the incomes of the poorest half of the population are already set to fall next year, failing to uprate working-age benefits in line with prices would be hard to defend, deepening a cost of living crisis that is already hitting low and middle income households the hardest.”
Any cash freeze to benefits next year would be a return to a policy implemented between 2016-17 and 2019-20, the economic think tank pointed out.
The authors of Saturday’s study found that freezing the cash value of Universal Credit entitlements next year would save around £2.9 billion.
Also freezing other “non-protected” working-age benefits (such as child benefit, jobseekers’ allowance, tax credits and statutory maternity and paternity pay) would save around £4.2 billion, they said.
The think tank warned that scrapping the benefit uprating would hit the incomes of 45% of working-age households when Britain is already in the grip of a cost-of-living crisis.
Giving an example of those who could be hit worst, researchers said a working couple in receipt of Universal Credit with two children would see their annual income reduced by £1,241.
It said that, even if the uprating does go ahead, the poorest half of the population are on track to see another disposable income fall of around 1% next year, putting a further 300,000 people into absolute poverty.
A Government spokeswoman said: “We increased benefits by over 10% this year in order to protect the most vulnerable from the impact of high inflation.
“As is the usual process, the Secretary of State will conduct his statutory annual review of benefits and state pensions in the Autumn, using the most recent data available.”
The Treasury has also been approached for comment.
