Cost of living squeeze expected to hit benefit claimants the hardest

A “triple-whammy” of incoming budget pressures over the next six months could leave low income families more than £1,000 worse off annually, according to a think tank.

The Resolution Foundation said inflation, rising energy bills, the looming rise in National Insurance (NI), and October’s Universal Credit (UC) cut could leave households worse off. And that’s even after accounting for increases in the minimum wage.

The foundation is urging ministers to take action where they can by keeping the UC uplift in place for 4.4 million households.

Squeezed

Karl Handscomb is a senior economist at the Resolution Foundation. He said upholding the weekly bonus would “go a long way towards easing the coming cost-of-living squeeze”.

The Treasury provided the additional £20 per week to UC recipients at the outset of the pandemic. But chancellor Rishi Sunak has so far been adamant it must end by October.

In their financial analysis, the independent think tank researchers said they took into account:

• The consumer prices index (CPI) hitting 4% – the highest in a decade – over the winter.
• Increased energy bills, with the 12% increase in the energy price cap from 1 October and a further projected 19% rise in six months.
• The cut to UC from 6 October.
• And the 1.25% health and social care levy being added to NI from April 2021.

Implications

The energy price cap increase means that from October a typical gas and electricity customer could see bills rise by £139 a year to £1,277.

The foundation took into account a 37p national living wage increase and a higher benefits uprating in April as a result of inflation being forecast to hit 2.7%. But despite these, a typical low-income household was still likely to feel the pinch. And families with children would be the worst off.

A couple with two children, where the parents are both working full-time and earning the minimum wage and slightly above that rate, would be £23 a week worse off over the next six months. The UC cut and rising energy bills would dwarf the £3 per week boost from the national living wage.

The organisation’s analysis also suggests that a single parent working part-time could see their income fall by £20 a week. While a low-earner without children working full-time on minimum wage could see their £9-a-week boost in hourly pay rate wiped out by the cost of living crunch.

Poor families hit hardest

A government spokesperson said:

We’ve taken action to keep the cost of living down for families, including the energy price cap, which is in place to protect 15 million households from increases in global gas prices this winter, and the doubling of free childcare.

Our warm home discount, winter fuel payments and cold weather payments will also support millions of vulnerable and low-income households with their energy bills.

The uplift to Universal Credit was always a temporary measure to help claimants through the toughest stages of the pandemic, and it has done so.

It’s right that as the economy rebounds, we should focus on our multibillion-pound plan for jobs, supporting people back into work and helping the employed progress in their career and earn more.

However, the government response doesn’t seem to account for the disproportionate impact of the “tight cost of living squeeze” on benefit claimants. As Handscomb said:

Britain is about to enter a tight cost-of-living squeeze over the next six months as high inflation and rising energy bills collide with the Government’s decision to cut benefits and raise taxes.

Low-and-middle-income families will face the tightest squeeze.

Many drivers of high inflation should be short-lived, but that will be of little comfort to families struggling over the coming weeks and months.

While policies like the national living wage will deliver a welcome income boost for some, for many low-income families this won’t come close to offsetting the damage caused by cutting universal credit.

Maintaining the £20-a-week uplift will go a long way towards easing the coming cost-of-living squeeze for millions of families.