AN influential think tank has found that the £19 billion scheme launched by Rishi Sunak which was supposed to help people survive the cost of living crisis was an expensive and ineffective “sticking plaster”.
The research by the Institute for Fiscal Studies (IFS) confirms it would have been better simply to increase benefit levels. The scheme was not only “poorly designed to alleviate deprivation”, but in fact created more difficulties for many of the poorest households because of its sporadic, lump-sum nature.
“This sticking-plaster solution has proved expensive and ineffective by comparison, offering much bigger proportionate increases to some – notably those without children and those in work – than to others,” the IFS reported.
The cost of living payments were introduced by Sunak when he was Chancellor and amount to nearly £19bn over two years.
The research, funded by the Joseph Rowntree Foundation (JRF), found that although the payments resulted in higher spending for low-income households, they were not targeted at those most in need.
The data suggests that many may have been experiencing hardship whilst waiting for the payment to come through as there was a subsequent jump in spending following payments, followed by a sharp fall after the spike.
“Large one-off payments, rather than smaller regular payments, are less useful for long-term budgeting,” the report points out.
JRF chief analyst Peter Matejic said the research showed policymakers “ignored” the “obvious” answer to the cost of living crisis facing low-income households of increasing benefit levels.
Instead the Tory Government favoured a solution that “didn’t focus on helping the families left agonising about how they would afford to feed and clothe their children”.
“We know that around nine in 10 low-income households on universal credit are going without the essentials like food, soap and clothing,” he said.
“That is because the gap between what they receive in Universal Credit and the price of everyday goods is at least £35 a week, even before any deductions are taken at unaffordable rates. Even with one-off emergency payments, no amount of budgeting covers this gap over a sustained period.”
Matejic added: “The sure-fire way to make sure the people most at risk of poverty aren’t left in jeopardy in the wake of economic shocks is to adopt the Essentials Guarantee which would mean the basic rate of Universal Credit at least covers the cost of life’s essentials, with support never being pulled below that level.”
During the Covid pandemic, Sunak introduced but later cut a £20 per week rise in the value of benefits amid widespread protest. He then refused to increase benefits by more than 3.1% for the 2022-223 financial year even though inflation was running at more than twice as much at the time. The IFS has forecast that it will be at least April 2025 before benefits return to pre-pandemic levels.
Sam Ray-Chaudhuri, an IFS research economist and an author of the report, said: “By giving the same amount to all households on benefits regardless of their circumstances, the payments were not targeted at those in the greatest need, limiting their effectiveness in poverty reduction.
“A better-targeted policy could have offered higher amounts of support to those in greatest need, with no additional cost to the taxpayer.”
The report, which examines wider trends in poverty since the pandemic, also highlights the importance of benefit levels to poverty rates more generally.
Analysis shows that in the first year of the pandemic, despite wider turmoil, absolute poverty fell from 17.9% to 16.8% due to rising benefit receipt, in particular from the temporary £20 a week uplift to universal credit.
In 2021–22, absolute poverty was still 0.7% (479,000 people) below its pre-pandemic level, to a significant extent because of the £20 uplift (which was in place for the first six months of 2021–22) and subsequent changes to the Universal Credit work allowances and taper rate (which reduced the speed at which Universal Credit is withdrawn as earnings rise).
The changes to the Universal Credit work allowances and taper rate have a much smaller effect on poverty than the £20 uplift they replaced. Per pound of government spending, the uplift had a 40% larger impact on reducing poverty.
This is because the work allowance and taper changes mainly benefit somewhat higher-earning households a little further up the income distribution, and do not benefit out-of-work households at all, who tend to be the poorest.
