There is less than a week left until millions of people receiving universal credit (UC) will find themselves with £20 a week less in their pockets. The UK is facing a cost of living crisis which is set to sharpen significantly for those on the lowest incomes over the next few months. Millions are going to be hit by a triple whammy of price increases for food and energy bills, welfare cuts, and tax rises. In total, low-income families will see a squeeze of more than £1,700 a year by April.
By far the most important driver of this squeeze is the £1,040 a year cut to UC due at the start of October. The UK safety net is already one of the weakest among advanced economies and in the UK’s own post-war history. Yet this is about to be compounded by the largest overnight cut to welfare in seventy years, hitting families disproportionately in the North East, West Midlands, Yorkshire and the Humber, and London.
The best way to understand the impact of the UC cut is to look at it from the point of view of what different UK families actually need to get by, which is helpfully captured by the Joseph Rowntree Foundation’s ‘minimum income standard’ (MIS). At the New Economics Foundation, we’ve conducted modelling which showed that when the uplift is removed, 21.4 million people, including seven million children, will live in households that do not have the amount they need to afford the basics.
The effect of this will be different for different households. Some will have to choose between heating and eating, weighing up whether to eat vegetables for dinner while wearing three jumpers, or some simple toast next to a warm radiator. Others will be getting by alright until their boiler breaks, or their kid needs new shoes – meaning anxiety and stress just to make ends meet for the next few weeks or months.
The constant stress those on low incomes are under has devastating effects on mental and physical health. Inadequate income is intrinsically linked to food poverty and poor diet, placing people at higher risk of developing chronic diseases such as hypertension and diabetes, and cardiovascular disease. Poverty is a significant risk factor in a wide range of psychological illnesses, and economic insecurity can both be caused by and cause mental ill health.
Beyond the devastating effect on individuals, poverty is also bad for the economy and society. Poverty constrains opportunity for people on low incomes to invest in themselves and their future, leading to lower national output and productivity than would have otherwise been the case. And poverty is expensive. Those who fall through the gaps are more likely to be made homeless, fall into ill health, or need interventions from social services. All this comes at a cost – one report found that twenty percent of the spending on public services is committed to dealing with the way poverty damages people’s lives.
So you’d think keeping the £20 uplift is a no-brainer. Besides the Treasury and Boris Johnson, nearly everyone agrees. The majority of Britons in a recent poll support keeping the uplift. All of the six most recent work and pensions ministers—including the architect of UC, Iain Duncan Smith—are in favour of keeping it, as well as many other Conservative MPs. Marcus Rashford is also on the case.
But here’s the thing. The cost of living crisis is not new – it’s just deepening and affecting more and more people. Even before the pandemic, millions lived in poverty and the poverty rate among children was increasing. The pandemic followed a decade of stagnant growth in real earnings, rising housing costs for renters, and freezes, cuts, and caps to working-age benefits, particularly those received by families with children. This held down the living standards of the poorest, while widening inequalities across the population as a whole, making the UK an international outlier on poverty – the extent to which the poorest families fell below the poverty line was the second highest among 37 members of the Organisation for Economic Cooperation and Development (OECD).
As a result, even with the £20 uplift, 20.8 million people will be in households with incomes below what they need to live with some basic security. For a start, the uplift doesn’t apply to the millions on ‘legacy benefits’, including 2.7 million disabled people in receipt of Personal Independence Payments, or people who have no recourse to public funds who can’t even get benefits if they need them. It doesn’t help that people have to wait five weeks for their first payment, and are often forced to turn to foodbanks while they wait. It only puts a minor sticking plaster on the needs of larger families, since the cruel introduction of a two-child limit to the amount of support families can get (affecting more than a million children).
In fact, reform to universal credit should go much further than keeping the £20 uplift. The five-week wait and two-child limit should also be scrapped. And the government should be considering raising the main amounts and child elements of UC even further. The disabled elements and carer elements definitely need increasing, as they are in most part lower than the legacy benefits they are replacing. And childcare should be fully covered to support parents whose children are old enough, and who want to return to work. But what we really need is wholesale reform of our social security system. At NEF, we’re campaigning for a living income which would mean that everyone can make ends meet.
Opponents to this have two arguments, both espoused by our government. First is cost – the £20 uplift costs roughly £6 billion a year. But this figure pales in comparison to the full Covid bill of £400 billion. It is not obvious why the UC support should be cut when Covid is clearly not yet gone, and better social security will reduce the cost of poverty to the public purse. It also makes no sense to depress demand at a risky time for the UK economy. And in the long run this cost could be covered easily by a range of different tax reforms that make our tax system fairer. We could increase the taxation of income from wealth, for example by bringing capital gains tax up to the same level as income tax (raising over £13 billion), and reducing tax relief on pension contributions for higher earners (raising over £8 billion).
The second objection is a general opposition to improving social security on the grounds that work is the best route out of poverty. But 66 percent of people who claim support are either not expected to work (due to caring for a child under two or having limited capacity for work), or are already in work. Paid work is a route out of poverty for some, but it must be accompanied by a working social security system.
The cost of living crisis has been building in the UK for at least a decade. Ambitious action will be needed to reverse it.