Yahoo Finance Cut to benefits uprating to save £3bn but leave UK's poorest at record lows
Uprating benefits in line with earnings next year could save as much as £3bn. However, it would set the typical incomes of the poorest UK households back to levels not seen in two decades.
According to the Resolution Foundation on Thursday, 9 million households, containing 30 million people, will be affected if the government goes ahead with reducing the uprating of non-protected working-age benefits, such as universal credit (UC), in 2023.
This will mean 3 million households, or 15% of working-age households, are set to lose over £500.
The policy would save the UK government around £3bn by 2026-27. This is less than some have suggested, as it would exclude protected benefits such as Disability Living Allowance and Personal Independence Payments.
“The scale of losses would range considerably by family,” Resolution Foundation said.
A couple with one child only receiving child benefit would lose £52 a year, while a single disabled adult on UC would lose £380.
Low-income families with children would lose the most — a working single parent with one child would lose £478, and a working couple with three children would lose £978.
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It comes as working-age benefits have already failed to keep pace with inflation in nine out of the last 12 years. If this continues next April it would leave basic unemployment support falling below its real terms level of 40 years ago in 1983-84.
Resolution Foundation has calculated that real incomes for the poorest will see a further significant fall next year.
The income of the typical person in the bottom fifth of the income distribution was already on track to fall by 11% in 2023-24 — the worst drop on record since they began in 1962. This fall would deepen to 14% if the benefits uprating cut goes ahead.
These large income falls for poorer households also mean large increases in absolute poverty levels.
The report found that the proportion of people living in absolute poverty in the UK is already projected to rise from 17% to 21% between 2021-22 and 2023-24, an increase of 2.9 million people.
If a benefit uprating cut goes ahead, Resolution Foundation calculates that another 600,000 people, including 300,000 children, would be added to this figure.
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“Plans to cut benefits like universal credit by uprating them by less than inflation could save the Treasury low billions of pounds, but reduce the incomes of nine million households. Working parents who receive universal credit and child benefit would be hit particularly hard, with some losing up to £1,000,” Adam Corlett, principal economist at the Resolution Foundation, said.
“These cuts would come at a time when families are already set to struggle with rising prices, soaring mortgages, and the end of temporary support schemes.
"With benefits having repeatedly failed to keep pace with inflation over the past decade, this would see real income levels for Britain’s poorest families fall to levels not seen since the turn of the century.”
It comes as prime minister Liz Truss and chancellor Kwasi Kwarteng are considering various ways of reducing the deficit in the run-up to the medium-term fiscal plan on 31 October.
