What does the Autumn Statement mean for households on low incomes?
New measures will significantly limit low-income families’ exposure to rising costs next year. But as attention shifts to 2023, they are about to face the worst winter many will remember.
More could and should have been done to protect households on low incomes:
- April 2023 benefit uprating is a huge relief, but people cannot wait for April – we have been calling for additional support now as we head into winter.
- New measures will offset much of the extra costs next year for poorest families.
- Failing to unfreeze Local Housing Allowance is a serious omission that will hit renters hard.
- Overall, many low-income households will still be worse off next year.
- Investment in, and reform of, social security is still urgently needed to ensure that people can never be left without enough to afford the essentials.
Relief as families on benefits' incomes rise with inflation - but benefit levels at historic lows
Confirmation that benefits will rise next April in line with 10.1% inflation will be a huge relief to families receiving this income. There had been hints the Government was considering a lower uprating of 5-6%, which would have amounted to the biggest permanent real-terms cut to the basic rate of benefits ever made in a single year. By not going ahead with this cut, the Government has acknowledged that people cannot withstand our safety net being eroded any further.
Unfortunately, this uprating will not happen until next April, rather than being brought forward as we recommended. Low-income families are already struggling with rapidly rising bills and prices, and this winter will be incredibly difficult for many. Increasing benefit incomes early would have provided desperately needed extra help, during a period when energy bills will be particularly high through the cold winter months.
The Chancellor also announced the benefit cap would rise by inflation next year, again a recognition of the intense pressures facing people on the lowest incomes. This will be the first time the cap has been raised since its introduction in 2013 and it was cut significantly in 2016. The rise next April is desperately needed but will still leave thousands of families with incomes far beneath their need.
Even with the uprating, levels of social security support remain at historic lows. The basic rate of benefits is at its lowest in real terms for 40 years – barely clearing destitution levels for some adults. After more than ten years of cuts and freezes, simply maintaining the value of benefit incomes is not enough. Living in a country without a decent safety net is scary. It means that people like us, and the people we know, are no longer properly supported if they face challenging times. We need the Government to make changes to Universal Credit so that it can never fall below a level that would result in people being unable to afford the essentials.
Struggles of families this winter risk being forgotten as attention turns to next year
Low-income families did not receive any reassurance of additional support to help them this winter. We know that back in May 7 million lower-income households had already cut back on essentials and 1 million had taken out new loans specifically to cover these essentials. The numbers falling behind with their bills and unable to afford hot meals will only have risen since. JRF will be updating this analysis in December, showing how households are faring as they head into winter.
Entering this crisis with low levels of economic security and financial resilience has made it especially hard for many households. Without savings buffers, a secure and affordable home, and options for affordable credit, millions have fallen into arrears. The impact of being behind on essential bills, and using loans and credit cards to pay bills, rent or council tax has vicious implications for financial futures, impacting credit scores, health, having debts that spiral with rising interest rates.
We know that even after the energy price guarantee and cost of living payments are received, the extra costs facing families this winter overwhelm the extra income they are receiving. With foodbanks warning they will struggle to meet the need this winter, it is clear more support is vital and we urge the Chancellor not to leave it too late.
Newly announced measures will offset some, but not all, extra costs next year
The combination of a higher energy price guarantee and cost of living payments to those on means-tested benefits will provide significant support across the board, while targeting more support to people who need it most. Energy bills for a typical household will be capped at £3,000, while £900 payments will be made from April for those on means-tested benefits. Recent extra payments to pensioners (£300) and people receiving non-means-tested disability benefits (£150) will be repeated.
These measures will mitigate some of the worsening in people’s financial positions next year, though support will come at the wrong time for many (especially those on prepayment energy meters) as bills are high now with falling temperatures.
Continued use of one-off ad-hoc payments is a blunt policy tool, with serious limitations. These payments don’t account for differing need, result in rough justice for people who happen to need to claim outside the eligibility timing window, and people who narrowly don’t qualify are hit hard with a ‘cliff edge’: those just above the threshold for Universal Credit will have to tackle typical energy bills of £3,000 on their own while families with similar, but slightly lower, earnings receive £900 additional help.
Fundamentally it highlights again the importance of ensuring our existing safety net in Universal Credit is strong enough to ensure that no one’s income can fall below what’s needed to afford the essentials. Universal Credit provides support that is adjusted to need, regular, and tapered so the ‘cliff-edge’ effect seen with one-off payments does not occur.
Confirmation the National Living Wage rate will be increasing by 9.7% to £10.42 in 2023 is very good news, as is Government’s ongoing commitment to the National Living Wage meeting two-thirds of the median wage by 2024, as a key lever in tackling very low pay. For many on the lowest wages, this pay boost will work alongside the benefit uprating and rise in the benefit cap, acting together to make a significant difference.
Alongside this increase in the wage floor, it is important to see sufficient investment in enforcing minimum wages across the labour market. In 2019, the Low Pay Commission estimated that around 440,000 workers were paid less than the minimum wage; that’s 1 in 5 (21.5%) workers ‘covered’ by the rate, with the latest data from ONS showing a current figure of around 500,000. Well-resourced labour market enforcement is essential to ensuring rights on paper are also rights in practice, and to create a level playing field for employers, ensuring good employers aren’t undercut by bad ones.
Low-income households not fully shielded from tax rises and frozen benefits
A serious omission from the statement was action to unfreeze Local Housing Allowance. Instead, this will stay at levels based on rents over the 12 months to September 2019, hitting private renters very hard while not offering additional support while rents rise at their fastest rate for a decade. Increasing proportions of private renters on Universal Credit are facing shortfalls between their rents and support towards housing costs, meaning support meant to contribute to food and bills will have to be used to cover rent.
Constraining social rent increases to 7% goes some way to mitigating the impact of what could otherwise have been an 11% increase. But as other bills soar, an average annual increase of £360 in rents (for the third of families who pay all their rent) will pile pressure onto already squeezed household budgets. The finances of social housing landlords are also under substantial pressure as rent increase constraints mean falling real incomes while analysis suggests that the costs of repairing and maintaining homes are increasing faster than inflation.
Beyond this, other changes made in the statement will affect households on lower incomes:
- Councils are now allowed to raise council tax by up to 5% from April, a development that will scare many already in arrears. In May this year 1.4 million lower-income households (12.3%) reported being in arrears with council tax.
- Continuing to freeze personal tax thresholds, such as income tax and national insurance for an additional two years to April 2028 will bring some lower earners into paying tax and raise taxes for others.
- For many Government departments, there is nothing to support them to manage higher inflation-related costs, including pay, this year and next. Public services will likely struggle to maintain current service levels and many lower-income families will be affected if provision is further weakened.
Measures aren't enough to protect people on the lowest incomes next year
While the measures in the statement offset a large proportion of extra costs next year, for many this will still not be enough to prevent them being worse off overall. For example:
- For a single unemployed adult over 25 living alone, privately renting a relatively cheap room in a medium-cost area of the country, the measures announced in the statement will mitigate around two thirds of the potential fall in living standards next year. But they will still be around £653 worse off in 2023-24 than in 2022-23.
- A couple in low-paid work (one working full-time just above minimum wage and the other working part-time on minimum wage) with two children, topped up with Universal Credit, and renting privately in a similar area, will see almost all of their fall in living standards mitigated, but will still be around £103 worse off next year.
Of course, for families on low incomes but not eligible for Universal Credit these figures will likely be much worse as they will not have the £900 payment to support them.
As the economic climate further deteriorates, we are all affected. But for people on low incomes, this moment of intense hardship comes on top of a decade of cuts to the value of their incomes, a pandemic that dragged many into debt, and rocketing living costs for more than a year now. There is overwhelming evidence of huge and increasing numbers of people falling behind with their bills, unable to afford enough food and going without the essentials, even with Universal Credit and the additional support this year.
New announcements to help with costs from next April are welcome but there remain gaps and much comes too late. It’s clear our social security system still requires urgent reform to ensure no one’s income falls below what’s needed to afford the essentials. The effects of this winter will stay with us for years to come unless we act.
Written by - Rebecca McDonald, Rachelle Earwaker, Iain Porter, Abby Jitendra, Morgan Bestwick, and Joe Elliot.