Can People Afford a Benefits Cut in a Cost of Living Crisis?

With studies now suggesting that austerity measures led to 330,000 excess deaths and the ongoing crisis in child poverty rates, Sian Norris reports on concerns over further potential welfare cuts

The Cabinet is split over a suggested plan that benefits will rise in level with earnings rather than inflation next year – with some ministers condemning people living on “benefits street” while others express concern that the Party is abandoning “compassionate conservatism”. 

People claiming benefits such as Universal Credit saw a rise of 3.1% in April 2022, with the increase pinned to the consumer price index of the previous September. However, because inflation had increased to 9% by spring, this represented a real-terms cut. 

Now, that existing cut could be exacerbated. The Government is proposing what the Joseph Rowntree Foundation (JRF) has called “the biggest permanent real-terms cut to the basic rate of benefits ever made in a single year” – an increase in line with earnings (5.4%) as opposed to inflation (9.9%).

This real-term cut would mean the poorest 10% would see a cut to their incomes worth £214 per year. Uprating benefits by 5.4% would mean values are around 15% below April 2016 level.

The plan has been praised by the right of the Conservative Party, with Home Secretary Suella Braverman accusing “Benefit Street” of being a “feature of modern Britain” and that there exists a “stubborn core who see welfare as the go-to option”.

However, various high-profile Conservatives have expressed disquiet at the move. The newly-appointed Secretary of State for Work and Pensions, Chloe Smith, has shared her concerns, saying “protecting the vulnerable” is a priority. Her predecessor and the architect of Universal Credit, Iain Duncan-Smith, said that increasing benefits in line with earnings “did not make any sense”, while both Penny Mordaunt and Robert Buckland have voiced their opposition. 

“People living on low incomes need reassurance that the Government will raise benefits in line with inflation as usual,” said Katie Schmuecker, Principal Policy Adviser at the JRF. “Many are already struggling to heat their homes and cook hot meals. The Prime Minister must be clear that she won’t target cuts at people whose incomes are already falling so far short of what they need”.

The Government has introduced measures to support the worst off, including a cap on energy bills, changes to the taper rate for Universal Credit which gave two million working families an additional £1,000 per year, and its Household Support Fund. It has also introduced various energy bill support measures, including the Energy Rebate Scheme. 

---

Cuts and the Cost of Living

The UK is already struggling with a cost of living crisis that has left the poorest families struggling to make ends meet. 

Already, analysis by the JRF has found that seven million families are going without essentials, including food, heating, toiletries and showers because they simply cannot afford it. 

And experts have warned that the Prime Minister’s plan to freeze energy bills to support households facing sky-rocketing prices simply do not go far enough. 

Imran Hussain, director of policy and campaigns at Action for Children, described the plan as a “big intervention with a big hole in it. Fixing the cap is welcome and much needed, but the sums still won’t add up for low-income families who despite this help will continue to face bills far beyond what they can afford”.

“We desperately need more targeted help through benefits,” he added.

The row over increasing benefits would suggest that targeted help is not on its way unless the Conservative rebels win the argument that increasing means-tested benefits in line with inflation, not earnings, is the best way to support growth and protect the vulnerable. 

---

The Austerity Legacy

Further real-term cuts to benefits would follow more than a decade of austerity which has disproportionately hurt the poorest in society. 

In seven of the last 10 years, the Government has cut the value of benefits in real terms, including the scrapping of the £20 Universal Credit uplift in October 2021 – worth around £1,200 to the average claimant household. It has also imposed a benefits cap, cut child tax credits, implemented a “bedroom tax”, and introduced means testing for child benefit. 

Research published by the University of Glasgow and the Glasgow Centre for Population Health has foun