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

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. 

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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. 

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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 found there were 335,000 excess deaths in Britain between 2012 and 2019 linked to austerity, with men disproportionately impacted. There were more than 237,000 excess male deaths in England and Wales, compared to 77,173 in women. Death rates among women living in the 20% most deprived areas of England increased by 3%, having declined by 14% over the previous decade. 

Austerity measures are linked to an increase in poverty across the board. Even before the pandemic, relative poverty grew from 27% in 2013 to 31% in 2019, with larger families hardest hit. This is, in part, due to the cut to child tax credits for a third or more child, unless the mother could prove the child was conceived by rape, and she is no longer in a relationship with the father. 

Rates of child poverty continued to rise after the pandemic: the number of children living in relative poverty increased by 200,000 between 2019-2020, twice the rate of the previous year. This put the number of children growing up in poverty at 4.3 million – up from 3.6 million a decade earlier. Nearly three million children (2.9) are now living in “deep poverty”.

Far from living on “benefits street”, many of the children growing up in relative poverty see one or both parents go to work every day: in 2019, child poverty in working households had increased by 38% since 2010. 

That so many children are growing up in low-income but working households exposes one of the big myths around how benefits work and who claims them. Around 2.2 million people claiming Universal Credit are working, while 1.4 million are expected to be looking for work. The remaining 2.1 million claimants are not working because they have health problems that prevent them from being able to have a job, or caring responsibilities. 

“People’s lives are at breaking point,” said Schmuecker. “Anything below inflation will amount to the largest permanent deliberate real-terms cut to the basic rate of benefits in history. People are already going without as the cost of essentials soars. They need certainty now that they will be able to get through this winter and beyond”.