Austerity won’t be over until…the Chancellor stops cutting support for working families

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Published date
24 Oct 2018
If the Chancellor really wants to end austerity, he must reverse eight long years of cuts to the social security net

At this year’s Conservative Party conference, Theresa May announced with much fanfare that austerity was “over”.

Next week’s Budget will be the first chance to see if she meant what she said.

Universal Credit has rightly been in the headlines recently, with pressure building on the government to stop and scrap its flagship benefits policy before millions of working families lose out on vital support.

But Universal Credit is not the only government policy to hit working people hard.

If the Chancellor really wants to end austerity, he must reverse the cuts that are making their lives harder – starting with the freeze on working-age benefits.

How the benefits freeze works

In the past, social security payments went up with the cost of living. The September (CPI) inflation rate was used to calculate this ‘uprating’ of benefits for the following tax year, so that those receiving support were protected from rising prices.

But since 2015, the government has frozen the uprating of Jobseeker's Allowance, Employment and Support Allowance, Income Support, Housing Benefit, Universal Credit, Child Tax Credits, Working Tax Credits and Child Benefit.

This freeze, which won’t end until 2019/20, has broken the link between inflation and the uprating of benefits. It means that most people receiving social security support have faced a real-terms cut in their incomes.

Let’s be clear: holding incomes below the cost of living for people on benefits is a political choice. And we’re clear that austerity won’t be over until the benefits freeze is reversed.

Financial impact

According to the Institute of Fiscal Studies (IFS), rising prices will effectively cut the benefits of around 10.4 million households by an average of £150 per year in 2019–20.

And it calculates that between 2015-16 and 2019-20, those 10.4 million households will have seen a £420 reduction.

It’s important to remember that these cuts don’t impact everyone equally.

Because the figures show that poorer households have seen the biggest loss in both cash terms and as a share of their income.

Consequences

The Trussell Trust has highlighted the link between benefit levels and the growing use of foodbanks, which has shot up since the benefit freeze has come into force.

The rising number of food bank referrals is an indication of the wider growth in poverty.

The latest Households below Average Income Survey (HBAI) found a 300,000 increase in the number of people in relative poverty over the 2016/17 period – 55 per cent of whom are in working families.

The HBAI data set also showed that 4.1 million children are now living in poverty, a rise of a 100,000 over the year, and up from 3.6 million in 2010-11.

And the IFS argue that the freezing of benefits, the introduction of Universal Credit and less generous tax credits will result in child poverty surging to 5.2 million by 2022.

It’s not just the benefit freeze

As if things weren’t bad enough for working families, their social security net is set to fray further if the government ploughs ahead with the introduction of Universal Credit.

There were fundamental design and delivery problems with Universal Credit even before the government cut the budget for its roll out two years ago. 

The Resolution Foundation estimates that these cuts mean UC will be around £3 billion a year less generous that the current tax credit system.

This will leave many families significantly worse off, with lone parents disproportionately affected by cuts to the work allowance of up to £800 a year in real terms by 2020/21 .

It’s clear working families really struggling to make ends meet – and things look set to get worse.

So if the Chancellor is really serious about ending austerity, he must act urgently to reverse eight long years of cuts to the social security net.