Half a million more people in poverty if Government maintains benefits freeze

Real terms cuts to working-age benefits and tax credits – imposed before Prime Minister Theresa May took office - are set to drive almost half a million more people into poverty in 2020.

At the 2015 Budget, the former Chancellor George Osborne froze most working-age benefits for four years, including benefits to top up low wages and out of work benefits, from 2016/17 to 2019/20.

A new briefing by JRF published today highlights how the freeze will hit families in the pocket - the majority of which are in work. The freeze is the single biggest policy driver behind the expected rise in poverty by the end of the Parliament.

JRF is calling for the Government to target its resources better at struggling families. Rather than increase the personal tax allowance to £12,500, which would overwhelmingly benefit better off families, JRF is urging the Government to remove the benefits freeze. Only £1 in every £6 spent on raising the personal tax allowance goes to the bottom half of the income distribution.

Campbell Robb, chief executive of JRF, said:

“People who are just managing at best are being hit in the pocket by the freeze on benefits and tax credits. It means millions of families are finding life even harder to make ends meet - whether paying for the weekly food shop, covering energy bills or finding enough money to pay the rent.

“While the Treasury gains from this policy in the short-term, more children living in poverty has costs the Exchequer an estimated £6.4bn per year in lost tax revenue and additional benefit spending.

“The focus should be on making sure low-income family budgets keep pace with the cost of essentials, while reducing the benefit bill through increasing employment and enabling people on low pay to increase their earnings.

“No government wants to fight an election on a record of rising poverty and falling living standards. Circumstances have changed, so policy needs to change too. As prices rise, the priority should be to protect the budgets of the lowest income families. It’s time to lift the freeze.”

The analysis found:

  • Higher than forecast inflation means the hit to low income families – and savings for the Treasury - will be almost £0.9bn more than the £4bn originally expected from this cut in 2020/21.
  • In 2019/20, when the freeze is due to end, a couple with two children in receipt of Universal Credit will be £16 per week (£832 per year) worse off than they would’ve been had benefits kept up with prices since 2010. A lone parent with two children is £13 per week (£676 per year) is worse off. Both figures are the same whether out-of-work or working full time for the National Living Wage.
  • The freeze will result in 470,000 more people living in poverty in 2020/21. It is the single biggest policy driver behind the expected rise in poverty between now and 2020/21.

JRF is calling on the Government to use its Autumn Budget to ensure the incomes of the least well-off keep pace with the cost of essentials, by unfreezing benefits and uprating them in line with rising costs.

It recommends unfreezing targeted income related benefits such as tax credits, Universal Credit, the Local Housing Allowance and Job Seekers Allowance, over more widespread benefits such as child benefit.

Uprating income related benefits (not including child benefit) with CPI inflation from 2018/19 would result in 380,000 fewer people in poverty in 2020/21. Nine 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.

The Government could make progress on helping families with children and private renters who are struggling by:

  • Uprating just the child related elements of Universal Credit would cost around £1bn in 2020/21 and result in 100,000 fewer people in poverty.
  • Uprating just the Local Housing Allowance with rents would help the 4.7million people living in the private rented sector who experience poverty after paying housing costs.