UPRATING BENEFITS IN LINE WITH EARNINGS next year could save £3 billion but would set the typical incomes of the poorest fifth of working-age families back to levels not seen since 2000-01, according to new analysis published by the Resolution Foundation.

The latest Resolution Foundation briefing, The Long Squeeze, assesses the impact of raising working-age benefits in line with earnings rather than prices in terms of the savings for the Treasury, the impact on households, and where it would leave working-age benefits and the living standards of those on lower incomes.

It finds that nine million households (45 per cent of working-age UK 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) next year, with 3 million households (15 per cent of working-age UK households) set to lose over £500.

This policy would save around £3 billion by 2026-27 – 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. A couple with one child only receiving Child Benefit would lose £52 a year, while a single disabled adult on Universal Credit 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.

The decision on uprating comes after a long squeeze on working-age benefits, which have failed to keep pace with inflation in nine out of the last 12 years. If that continues next April it would leave basic unemployment support falling below its real terms level 40 years earlier in 1983-84.

The context for a significant benefit cut is an already very difficult time for low-to-middle income family finances. While prices may be another seven per cent higher in 2023-24 than in 2022-23, much of the welcome cost-of-living support provided this year by the Government, such as the £400 Energy Bills Support Scheme and the £650 Cost of Living Payments, will soon come to an end.

Because of this, the Foundation calculates 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 per cent in 2023-24 – the worst drop on record since records began in 1962. This fall would deepen to 14 per cent if the rumoured benefits uprating cut goes ahead.

The Foundation says this would compound what has been a terrible decade for the living standards of low-and-middle income Britain: its analysis shows that if the benefits uprating cut goes ahead, typical real incomes for the poorest fifth of households would fall back next year to levels last seen at the turn of the last century (2000-01) – marking an unprecedented period of living standards stagnation for millions of low-income families.

These large income falls for poorer households mean large increases in absolute poverty levels. The Foundation finds that the proportion of people living in absolute poverty in the UK is already projected to rise from 17 per cent to 21 per cent between 2021-22 and 2023-24 (an increase of 2.9 million people). If a benefit uprating cut goes ahead, the Foundation calculates that another 600,000 people, including 300,000 children, would be added to this figure.

Adam Corlett, Principal Economist at the Resolution Foundation, says: “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.

“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.”

* Read The Long Squeeze: Benefit uprating policy for April 2023 here.

* Source: Resolution Foundation