Why failure to uprate in 2023 will destroy an already inadequate benefits system

Statistics from the Office for National Statistics yesterday show that inflation for September was at 10.1%. The price of food is rising faster than at any point over the last 40 years.

Failure to fully uprate in the six years from April 2014 to March 2020 means that benefits had already lost around 10% of their value. This previous failure to uprate is a permanent cut, and a failure to uprate by anything less than 10.1% would also be a permanent cut compounded on the failure to uprate in previous years.

Why is it a permanent cut? When inflation falls back down to more normal levels, prices don’t return to where they were before. Those increases are locked in. And it is not as if benefit levels are adequate – the Joseph Rowntree Foundation publishes an annual minimum income standard that shows that the Universal Credit (UC) standard allowance for a single person aged 25 or over (how much you get if you are unemployed) is £216 per week below the standard, and £386 per week below the standard for a couple.

Currently, the justification for not uprating benefits is that people on benefits “shouldn’t do better than those in work”. But the same UC allowances also apply to people in low paid employment – accounting for around 40% of those that receive help. In fact, those in low paid employment on UC would lose out twice if benefits are not up-rating by earnings, on the standard UC allowance rates and once on the work allowance (the part of your pay that is disregarded so you are better off in work).

Yet even if all the main rates are fully indexed, some UC claimants will still lose out or see no increase at all unless further adjustments are made. Those affected by the benefit cap will not get any increase, while others will be affected for the first time as the increase pulls them over the cap level - and will therefore get a below inflation increase.

The up-rating doesn't apply to local housing allowances which have been frozen at 2020 rent levels. If private tenants get a rent increase in April, they will have to use part of their UC standard allowance, which is intended for other living expenses to cover the shortfall.

The best way to support people on low incomes is through the benefits system. Around two thirds of social housing tenants and one third of private tenants receive help with their rent and/or service charges through housing benefit/universal credit. What would happen if benefits were uprated by earnings instead of inflation next year?

• Poverty will increase. The proportion of people living in absolute poverty across the UK is projected to rise from 17% in 2021-2022 to 21% in April 2023-2024.
• Low-income families with children would lose out the most. A working single parent with one child would lose £478 per year and a working couple with three children would lose £978.
• Nine million households would face an income loss, with three million facing an annual loss of over £500.

We learned yesterday that the government has committed to uprate pensions by CPI. Although good news, it is worth noting that they are required to do this by law or pass legislation to prevent this. All main working age benefits, including legacy benefits and UC, are only uprated if the Secretary of State for Work and Pensions (SSWP) approves them in regulations - the SSWP may choose a lower figure (earnings). MPs can only vote to reject the up-rating - they cannot vote to change it. If they vote to reject the uprating, then these benefits don't go up at all. So, at this point, we still don't know if these benefits will be uprated until the Chancellor's statement on the 31 October.

People are increasingly unable to meet their basic needs and we are urging the Chancellor to listen to our calls of raising benefits in line with the CPI figure of 10.1% next April. Failure to do so see over 10 million working-age families struggling to survive because of the ever worsening cost of living crisis.