This isn’t what change feels like
Investment in social security will reduce poverty this April, but progress will stall without a comprehensive set of actions for more than economic growth alone.
- Written by:
- Date published:
- Reading time:
- 16 minutes
Executive summary
For families to feel the change that Government has promised, 2 key objectives have to be met: living standards need to rise, and poverty has to fall. Progress on both living standards and poverty has remained stubbornly absent for successive Governments.
Come April that will start to change. Primarily because of the removal of the two-child limit, 400,000 fewer children will be experiencing poverty this April compared to last. Headline poverty will reduce to 21.2% from 22.3% in April 2025 (Figure 1). For the half a million families that will immediately benefit, it might just start to feel like the cost of living is turning a corner, that affording the weekly food shop gets a little bit easier, and that the anxiety over how to pay the bills doesn’t feel quite as severe (Office for Budget Responsibility, 2025a). In starting to restore the link between circumstance and support in the income safety net, the first significant step towards change has been taken.
While a severe recent harm has been removed from the social security system in the form of scrapping the two-child limit, we still need to hear what the Government hopes to achieve on poverty over the rest of the parliament beyond this, in terms of driving levels further downwards, and what ministers intend to do to bring about that change. So more is needed. This cannot be the only step. If it is, then progress will likely stall after April.
Between April 2026 and 2029 the headline poverty rate will reduce very marginally from 21.2% to 21.0% (Figure 1). This is driven almost entirely by a reduction in the pension-age poverty rate, with pensioners continuing to benefit from the triple lock. Over 4 million children will still be growing up in poverty come April 2029.
These levels of poverty are incompatible with the Prime Minister’s ambition that ‘no child is held back by poverty’ (Starmer, 2025), nor will improvements in the economic security of low- and middle-income households be widely felt. Such a scenario will also see little progress towards the manifesto commitment to end the mass dependence on food banks.
Should the economy perform more strongly than anticipated, living standards will rise faster — more people will be working and hourly pay will be higher. Working towards a stronger and better economy should be a key ambition of any Government and families will feel the benefit. But economic growth alone will be unlikely to significantly reduce the number of people experiencing the scarring impacts of poverty, with poverty remaining at 21.0% in April 2029 in our upside scenario. This dynamic follows from middle- and high-income households typically benefitting more from growth than low-income families, increasing the gap between the bottom and the middle of the income distribution. For families that benefit less from growth, this can pull them into poverty or increase the depth of their hardship.
Alongside efforts to improve the economy and tackle the drivers of poverty, the Government needs to focus on immediate steps to alleviate hardship directly. Including:
- introducing a protected minimum floor into Universal Credit (UC) to embed for the first time the principle of a safety net below which no one should fall and to better protect the link between circumstance and support that removing the two-child limit has started to restore (Porter and Rabindrakumar, 2024)
- permanently re-link the local housing allowance to further strengthen the link between support and needs, and to give the child poverty strategy a better chance of tackling the scandalous number of children living in temporary accommodation.
Beyond the immediate, the Government requires a holistic plan to reduce poverty that is commensurate with the unsustainable levels of hardship seen across the UK today. This plan must strengthen social security, creating a system that prevents families from going without the essentials. It must also strengthen protections in the labour market to ensure all types of worker, including the self-employed, have support to fall back on when temporarily out of work due to care leave, sick leave or losing work.
1. Projecting the economic outlook
Our central scenario uses projections made at the Autumn Budget by the Office for Budget Responsibility (OBR). These projections predict how the economy will develop over the next few years based on current Government policy. The scenario put forward is absent of any sizeable external shocks like greater trade frictions, increased global conflict, or unexpected technological advances.
Our upside and downside scenarios explore plausible alternative trajectories for the economy, and therefore living standards and poverty. Our upside is consistent with stronger employment and productivity growth, the latter leading to higher real wages. The downside scenario sees weak demand for goods and services constrain the economy in the short term, with reduced productivity growth over the medium term. Both are influenced by OBR and Bank of England analysis.
While both scenarios are a departure from our central case, they remain in line with possibilities put forward by the OBR and Bank of England. For example, we assume medium-term productivity growth of 0.7% and 1.3% in the downside and upside respectively, both of which are within the 0.5% — 1.5% estimated by the OBR (2025b). The differences between our scenarios are summarised in the methodology.
Note that these are modelled conditional scenarios. They present a series of necessarily simplified views of the future and are heavily reliant on the forecast variables that are available at the time of our research. They are therefore a guide to what might happen in the future without further policy changes, rather than a forecast. We do, however, believe this work is useful to consider the extent to which growth can tackle poverty and improve living standards, without further policy changes.
What did the OBR project at the Budget?
The OBR expect that prices will stabilise over the Parliament, with inflation (the consumer price index, CPI) likely to return to near the Bank of England’s target of 2% from the end of 2026 onwards. The pace of increase in housing costs will also fall over the period, with mortgages benefiting from the Bank of England rate remaining below recent highs until the end of the Parliament.
On the labour market, the projections show the participation and unemployment rates reducing over the forecast, while employment remains relatively stable (declining slightly then recovering). Demographic changes and more working-age adults unable to work due to long-term health conditions are judged to outweigh the impact of the State Pension Age increase, falling birthrate, and migration, leading to a lower participation rate, but the unemployment rate also falls as the economy recovers.
The OBR’s projections also suggest the rest of the Parliament will see few opportunities for real earnings growth beyond 2026/27, which will average 0.1%. This is in part caused by downgrade to the assumed growth in productivity over the medium term.
The number of people receiving health-related benefits will continue to rise over the Parliament, but at a slower pace than in recent years. Indeed, new claims for Personal Independence Payment (PIP) have started to fall, with the largest absolute reductions amongst the 45-69 age group (Tims, 2026).
Further reducing caseload projections is the completion of managed migration in April. This process has moved people from the old, legacy benefits system onto UC. In line with the purpose of UC versus the legacy system, migration ensured better take-up of the support people are eligible for, with 112,000 more people receiving the health element of UC (UC-H) between September 2023 and February 2025 (23% of the non-health-related caseload growth in that period) (OBR, 2025a). With managed migration ending, this source of the increased caseload will close. At the same time, managed migration has also resulted in 15% of households not transitioning onto UC, reducing total caseloads compared to past expectations (DWP, 2025a).
Taken in the round, these projections suggest that living standards are unlikely to improve between April 2026 and 2029 (Figure 2). Indeed, our central scenario shows that incomes will fall in real terms across the income spectrum, with the greatest relative losses concentrated towards low-income households. The scenarios set out in the next section describe 2 alternative paths for living standards, exploring uncertainty in the OBR projections. The downside scenario displays a similar pattern as in the central, but with everyone worse off. The upside scenario is more positive, with the majority of households seeing some real-terms increase in disposable income.
The differing growth rates will have differing impacts on inequality, and thus poverty. For example, in the upside scenario, the strongest growth is reserved for high-income households who receive a larger proportion of their income from earnings — which grow faster than inflation for longer — and unearned income, which typically incur lower tax rates compared to earnings from work. Meanwhile low-income families likely face a real-terms decline in living standards. The result is a faster-growing economy that will not see poverty reduce. Indeed, as explored shortly, poverty rates are unlikely to significantly fall in any of our plausible trajectories for the economy, underling the need for continued concerted policy action.
How might the projections vary?
We take the OBR projections as our central estimate for the future of the economy. Importantly, these projections do not incorporate any impact of an unexpected external shock. The effect of such a shock would depend on its nature (for example, the inflation shock as in 2022 would be different to an employment shock during a recession), its size, and the speed of recovery from the shock.
Given the varied and unpredictable outcomes, our modelling does not consider this form of risk. Instead, we explore how uncertainty over the parameters of the OBR’s projections can impact disposable incomes and poverty levels, starting with our upside scenario.
Upside scenario
The upside scenario, which reflects a more positive living standards outlook, amends the expectations for the labour market and medium-term productivity growth. This scenario also considers how the more positive outlook could impact receipt of some disability benefits.
The OBR’s November forecast reduced medium-term productivity growth assumptions by 0.3 percentage points to 1%. For our upside scenario we reverse this reduction, setting medium-run annual productivity growth at 1.3% — towards the upper end of the OBR’s range (OBR, 2025b). This results in real earnings being 0.8% higher than in the central scenario by April 2029. The better than anticipated productivity growth could materialise if particularly weak performance since the pandemic — on the back of weak growth since the financial crisis — is shown to have been a short-term blip, if productivity gains from artificial intelligence are embedded quickly into firms, or if initial estimates are significantly increased upon revision, as has sometimes occurred.
Recent data also suggests an increase in the share of jobs ending due to firms closing, with an increase in job reallocation between sectors. While it is too early to know for sure, this increase in labour-market dynamism could signal that less-productive firms are closing down, creating space for new, more productive organisations to take their place, if they can attract investment (Resolution Foundation, 2026). This scenario sees the unemployment that has resulted from events like firm closure fall faster.
The third difference is to reduce the onflow rate for health-related benefits. We can still expect increases in total caseload due to worsening population health and an aging society, but to a lesser extent. As cost of living pressures ease from stronger wages and higher employment, we can expect fewer people to make a new claim for PIP or UC-H as, despite being eligible, they find their current income will suffice (OBR, 2024).
Downside scenario
Our downside scenario, showing weaker income growth than our central scenario, contains 2 prominent departures from the OBR’s data: demand deficiency and lower medium-run productivity.
Demand deficiency could occur due to households wishing to save more, either influenced by the recent inflation shock (Mann, 2025) or because of uncertainty over job prospects (Bank of England, 2025) — concern over the future profit of firms results in lower investment and labour demand. The deficiency may also be the result of the inadequacy of UC, preventing the sufficient automatic stabilisation of demand as unemployment rises. Whatever the source, this lack of demand leads to a lower employment rate and lower real wage growth. Inflation is lower over the medium-term due to a persistent loosening of monetary policy. We also assume some labour market scarring, which produces a higher unemployment rate in the medium term (Ball and Onken, 2021).
While the OBR’s November forecast reduced medium-term productivity growth assumptions, this still remains faster than growth in recent years. Our downside scenario considers the world in which productivity fails to meet the OBR’s new lower forecast. The result is lower real earnings growth, and thus lower income growth, in the medium term.
2. No progress after April 2026 without further action
The vast majority of any reduction in poverty likely to happen this Parliament, based on the Government’s current approach, will occur in April. This is primarily the result of removing the two-child limit. Beyond April progress could be very limited indeed. In our central scenario, the proportion of working-age adults living in poverty will fall by just 0.06% between April 2026 and April 2029, having fallen from 20.4% in April 2025 to 19.8% in April 2026 (Figure 3).
Similarly, the child poverty rate will fall from 31.6% to 28.7% between April 2025 and April 2026, and will hold broadly steady up to April 2029 — likely falling by just 0.05% per year. This is lower than in the three years before the pandemic (29.8%), but very similar to the average level throughout the 2010s (28.6%) and over 4 million children will be in poverty (DWP, 2025b). These tiny levels of reduction, paired with the poor outlook for living standards more broadly, will offer little hope to low-income families and the outlook for both age groups does not improve in our upside scenario.
The stalled progress we project is consistent with the shape of income growth shown in Figure 2, of low-income households experiencing the largest falls in real income. That the outlook for low-income families is worse than others reflects the increased proportion of their income from social security, which will grow by less than earnings throughout the forecast and remains inadequate due to austerity measures like the benefit cap and the freeze to the local housing allowance.
Unlike working-age social security, the support available to pensioners was not targeted by cuts during the austerity years. The continuing relative strength of benefits for pensioners compared to younger people, from the triple lock on the State Pension to Pension Credit, mean that this age group are the only ones to experience a sustained fall in their poverty rate after April, from 16.7% this April to 15.9% in April 2029.
3. Stronger economy won’t tackle poverty, but tackling poverty can strengthen economy
These scenarios show that the Government’s current approach to the economy will be unlikely to materially address living standards, and that pursuing growth alone in the hope that poverty will fall is misplaced. Even if the economy performs substantially better than expected, with the Government hitting their ambition for 80% of working-age adults to be working, 20.4% of all people will continue to live in poverty versus 21% in our central scenario.
As it stands, not enough people will experience a positive change in their circumstances, and change will not have been delivered. Already almost 3 in 5 (58%) people are not sure the cost of living crisis will ever end (Tryl, 2026). Living standards need to rise so that everyone can catch up to and afford permanently higher prices.
Poverty needs to fall to improve the economic security of low-income families and to address long-standing imbalances in our economy. These imbalances feed through into worse outcomes for people and places.
Children who grow up trapped in poverty are almost twice as likely as those not experiencing persistent poverty to not be in education, employment, or training (NEET) at age 17 (Udu et. al., 2025), while job opportunities are scarcer, and the competition for those jobs greater, in more deprived local economies (Tims et. al., 2025). The inability to afford essentials also prevents full participation in society and the economy. Getting the bus to work or to see friends is unaffordable; paying for a child’s school trip becomes impossible without taking on debt. This constant requirement to make such trade-offs increases mental burden (Mullainathan and Shafir, 2013) and stress, limits the productivity of the workday (Smith, 2024), and increases the duration someone lives in poverty .
Instead, a renewed focus on the addressing the cost of living through lower prices and improved incomes is needed. This renewed focus needs to begin by making better use of the policy levers like the two-child limit that can have an overnight impact, including:
- introducing a minimum floor into Universal Credit (UC) (Porter and Rabindrakumar, 2024)
- permanently re-linking the local housing allowance to the 30th percentile of private rents.
These changes will take further steps to tackle hardship but will need to be followed by a significant and holistic plan to reduce the current unsustainable levels of poverty. This plan must strengthen social security to ensure every family can afford the essentials, and strengthen protections for all types of workers in the labour market when temporarily out of work due to care leave, sick leave or losing work.
Methodology
The analysis presented in this output makes use of the Institute for Public Policy Research (IPPR) Tax and Benefit Model (TBM), version 02_90 and the 2021-24 Family Resources Survey (FRS). Together with economic data such as inflation, earnings, and housing costs, they create a representative picture of poverty and wider living standards in the UK.
To bring the modelled data up to date we use outturn data from the OBR’s Economic and Fiscal Outlook for the Autumn Budget. This data, particularly from the last couple years, is often revised. To project up to 2029/30, we continue to use the OBR data for our central scenario, paired with caseload projections from the Department for Work and Pensions (DWP). A summary of the projections for each parameter fed into the IPPR TBM are contained in Table 1. Employment and unemployment data refers to the financial year, for example 2026 is the 2026/27 financial year. All other values are for the second quarter of that year.
Tables 2 and 3 present how our downside and upside scenarios differ to central. Our upside scenario represents a better outlook for living standards, with increased productivity and thus earnings, and employment higher at the end of the Parliament. The downside scenario explores weaker growth in disposable incomes, consistent with a demand deficient economy in the short term, and lower productivity growth over the medium term.
Differences between the central and upside were informed by the OBR for earnings (OBR, 2025b) and disability caseloads (OBR 2025a), and independent forecasters (HM Treasury, 2025) for employment. In 2029/30, there are 32,000 fewer working-age recipients of disability benefits in our upside scenario. The downside changes also make use of OBR estimates for productivity growth and earnings, with unemployment, inflation, and bank rate data coming from the Bank of England (2025).
Modelling household income involves an element of variability, particularly where we have semi-randomly amended employment rates from the base FRS. The analysis presented in this briefing takes the average of 5 model runs to account for this variance. Our child poverty estimates also differ from recent DWP estimates, which are based on a different model and will have made use of a new weighting methodology that more accurately represents the working-age Universal Credit caseload.
| Parameter | 2026 | 2027 | 2028 | 2029 |
|---|---|---|---|---|
| Inflation | 2.4% | 2.1% | 2.1% | 2.0% |
| Real earnings growth | 1.0% | 0.2% | 0.0% | 0.2% |
| Employment (16–64) | 75.5% | 75.9% | 76.2% | 76.5% |
| Unemployment (16–64) | 5.0% | 4.6% | 4.3% | 4.2% |
| Bank rate | 3.7% | 3.7% | 3.7% | 3.9% |
| Mortgage interest growth | 14.5% | 11.5% | 4.6% | 4.7% |
| Private rent growth | 3.3% | 2.5% | 1.9% | 2.0% |
| Parameter | 2026 | 2027 | 2028 | 2029 |
|---|---|---|---|---|
| Inflation | 2.4% | 2.1% | 2.1% | 2.0% |
| Real earnings growth | 1.1% | 0.4% | 0.3% | 0.5% |
| Employment (16–64) | 75.8% | 76.2% | 76.6% | 76.7% |
| Unemployment (16–64) | 4.7% | 4.2% | 3.8% | 3.9% |
| Bank rate | 3.7% | 3.7% | 3.7% | 3.9% |
| Mortgage interest growth | 14.5% | 11.5% | 4.6% | 4.7% |
| Private rent growth | 3.3% | 2.5% | 1.9% | 2.0% |
| Parameter | 2026 | 2027 | 2028 | 2029 |
|---|---|---|---|---|
| Inflation | 2.4% | 2.0% | 1.9% | 1.9% |
| Real earnings growth | 1.0% | 0.0% | -0.3% | -0.1% |
| Employment (16–64) | 75.1% | 75.8% | 76.0% | 76.2% |
| Unemployment (16–64) | 5.5% | 4.6% | 4.5% | 4.5% |
| Bank rate | 3.6% | 3.4% | 3.4% | 3.5% |
| Mortgage interest growth | 14.5% | 11.5% | 4.6% | 4.7% |
| Private rent growth | 3.3% | 2.5% | 1.9% | 2.0% |
References
Ball, L. Onken, J. (2021) Hysteresis in unemployment: evidence from OECD estimates of the natural rate
Bank of England (2025) Monetary Policy Report — November 2025
Department for Work and Pensions (DWP) (2025a) Completing the move to Universal Credit: Statistics related to the move of households claiming Tax Credits and DWP Benefits to Universal Credit: data to end of September 2025
Department for Work and Pensions (DWP) (2025b) Households Below Average Income: an analysis of the UK income distribution: FYE 1995 to FYE 2024
HM Treasury (2025) Forecasts for the UK economy: December 2025
Mann, C. (2025) Explaining the consumption gap — speech by Catherine L Mann
Mullainathan, S. and Shafir, E. (2013) Scarcity: Why Having Too Little Means So Much
Office for Budget Responsibility (2024) Welfare trends report — October 2024
Office for Budget Responsibility (OBR) (2025a) Economic and fiscal outlook — November 2025
Office for Budget Responsibility (OBR) (2025b) Briefing paper No. 9: Forecasting productivity
Porter, I. Rabindrakumar, S. (2024) A protected minimum floor in Universal Credit
Resolution Foundation (2026) New Year Outlook 2026
Smith, J. (2024) Cost of living pressures hurting productivity and wellbeing
Starmer, K. (2025) PM Keir Starmer’s Speech at Labour Party Conference 2025
Tims, S. (2026) @sam-tims.bsky.social
Tims, S. Ahlberg, M. Ladouch, F. (2025) Health-related benefit cuts will deliver higher poverty, not employment
Tryl, L. (2026) @luketryl.bsky.social
Udu, K. et. al. (2025) Poverty and family adversity trajectories and Not in Education, Employment or Training (NEET) status in early adulthood: Evidence from the UK Millennium Cohort Study
How to cite this briefing
If you are using this document in your own writing, our preferred citation is:
Belfield, C. Matejic, P. Tims, S. Wenham, A. (2026) This isn’t what change feels like. York: Joseph Rowntree Foundation.
This briefing is part of the social security topic.
Find out more about our work in this area.