Briefing for November 2017 Budget: Incomes not keeping up with prices

Incomes are not keeping up with prices. The benefits freeze in summer 2015 froze most benefits for working-age people for four years, from 2016/17 to 2019/20. This included benefits to top-up low earnings and out-of work-benefits, and follows a period when rises were capped at 1%. This welfare freeze has come at a time of rising prices of essentials and stagnation of average earnings.

Recommendations

The November 2017 Budget must ensure the incomes of the least well-off keep pace with the cost of essentials by removing the freeze and uprating income-related benefits with CPI from April 2018, and the local housing allowance with local rents.

Key points

• Almost half a million additional people are likely to be in poverty by 2020/21 as a result of the four year freeze on benefits that began in 2016/17. It is the biggest policy driver behind the expected rise in poverty.
• Higher than forecast inflation means the hit to low-income families – and gain to the Treasury - will be an estimated £0.9bn more than the £4bn originally expected from this cut in 2020/21.
• JRF recommends removing the freeze on income-related benefits and uprating them with CPI inflation from 2018/19. This would result in 380,000 fewer people in poverty in 2020/21; some 9 in 10 would be in families with children and 17 in 20 would be working families. It would cost an estimated £2.8bn in 2020/21
• Uprating just the child related elements of Universal Credit from 2018/9 would cost around £1bn in 2020/21 and result in 100,000 fewer people in poverty that year.
• Uprating the Local Housing Allowance with local rents would help the 4.7million people living in the private rented sector who experience poverty after paying housing costs.
• Unfreezing benefits is a more effective way to help low-income families than increasing the personal tax allowance (PTA). The planned PTA should be delayed or cancelled - only £1 in every £6 spent on this policy goes to the bottom half of the income distribution.