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Britain's broken politics: Tax cuts for the rich, frozen benefits for working families

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Benefit uprating should be based on need, not the whim of a government addicted to inflicting austerity on the poorest families

April used to be the month when social security benefits and pension rates were uprated in line with the cost of living.

This was a fair deal, giving working people the additional support they needed to keep up with rising prices.

But the uprating of most working age benefits has been frozen since the 2015 Summer Budget, and workers are now braced for the start of a fourth successive year.

According to the Joseph Rowntree Foundation, the first three years have already pushed 200,000 people into poverty – around half of them children.

That number is expected to rise to 400,000 by the time the freeze finally ends in April 2020.

By then, it will have affected 27 million people (including 11 million children) – the vast majority of whom come from working families with children.

So how much money will the freeze actually take from people’s pockets?

The IFS calculate that between 2015-16 and 2019-20, 10.4 million households will lose £420 from their benefits.

And poorer households will endure the biggest loss, both in cash terms and as a share of their income:

Impact of four-year freeze 2015-6 and 2019-20
Impact of four-year freeze 2015-6 and 2019-20 Source: IFS

Analysis by the Resolution Foundation shows that the freeze will save the Exchequer £1.8 billion in 2019-20, and £4.7 billion over its full four years.

But the £1.8 billion saved in 2019/20 by a policy that disproportionately hits lower and middle-income families will be completely offset by £2.8 billion of new income tax cuts that will overwhelmingly benefit better off households.

Budget 2018 announced personal tax allowances would rise to £12,500 in April 2019, and the Higher Rate Threshold to £50,000.

Raising the personal allowance also tends to benefit families on higher incomes the most, and those on middle incomes less so. It has a minimal impact for those on the lowest incomes.

The chart below by the Resolution Foundation shows the effect of the final year of the benefit freeze, alongside the impact of several other policies that kick-in from April.

It paints a gloomy picture for the poorest households over the coming financial year:

Changes in disposable household income as a result of recent tax and benefit policy changes, 2019-20
Changes in disposable household income as a result of recent tax and benefit policy changes, 2019-20 Source: Resolution Foundation

The overall tax and benefit changes being introduced this April will take £100 from families in the bottom fifth of the income distribution – driven by the on-going benefit freeze – and give £280 to those in the top fifth.

Benefits uprating policy

The four-year freeze also comes on top of earlier cuts to benefit uprating, including the switch from RPI to CPI-uprating from 2011, and capping benefit uprating at 1 per cent from 2013 until the complete freeze in 2016.

In the past, social security payments went up with the cost of living, so that those receiving support were protected from rising prices.

But the combination of meddling with benefit uprating and weaker income growth has held back household incomes of low to middle income households.

That’s why it comes as no surprise that new figures last week showed record numbers of working people trapped in poverty – with 57 per cent of those living in relative poverty in working households.

A system that doesn't work for working people

The government has severed the link between inflation and the uprating of benefits, creating a disconnect between income and actual living costs.

And the choice to hold incomes below the cost of living for people on in and out of work benefits has been a profoundly political one.

To ensure a strong safety net for working people, we need to restore the relationship between inflation and benefit uprating.

Benefit uprating should be based on the essential needs of individuals and families, not on the whim of a Tory government addicted to inflicting austerity on the poorest households.

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