More than half a million households on benefits will be worse off until at least 2025 as benefits payments fail to keep up with inflation.
More than 600,000 working-age households on means-tested benefits will still have less income in 2023–24 than if benefits had simply kept pace with inflation — despite the flat-rate cost of living payments, the Institute for Fiscal Studies (IFS) warned.
The annual uprating of benefits in April will “merely take them back to around the real level they were at a year earlier”, the think tank said.
Real benefit rates were 7.6% lower in 2022 compared with their pre-pandemic levels in 2019, and will be 6.2% lower in 2023 and 2.0% lower in 2024, the IFS said.
Sam Ray-Chaudhuri, an IFS research economist and an author of the report, said: “It was clear as soon as inflation surged in Autumn 2021 that deficiencies in benefit uprating procedures, if not remedied, were going to cause problems for claimants and policy headaches for government.
“It is high time that the government got ahead of this entirely foreseeable problem, and brought its way of price-indexing benefits into the 21st century.
“The crude patch that it will apply over the problem in the next financial year, in the form of cost of living grants, is no substitute for fixing it at source. And under current inflation expectations, benefits will still not have entirely regained their real value until April 2025.”
The lowest-income households are almost three times as exposed to energy costs as the highest-income households, the institute said.
The report stated: “Receipt of each of the three £300 instalments of the payment will be contingent on having been a universal credit recipient in a specific prior month.
“We estimate that, as a result, in each of the three relevant months there will be around 825,000 people who earn slightly more than is consistent with universal credit eligibility and who, as a result of missing out on the cost of living payment, end up with less income than other similar people who earn less.
“Equivalently, they could increase their own income were their earnings to be slightly lower.”