Benefit cuts: who is hurting?

Issue 242 (October 2014)

Paul Treloar, Advice and Rights Manager at CPAG, describes recent research on the impact of benefit cuts.

Introduction

A centrepiece of the coalition government’s approach to welfare reform is ‘Simplifying the welfare system and making sure work pays’.1 Regarding simplification, delays in the implementation of universal credit (UC) have hindered progress. Regarding making work pay, it’s been much more difficult to understand whether that has truly been achieved. Now, some research by the TUC suggests that working people have actually seen an unprecedented squeeze on their incomes over the course of this Parliament, with the number of working people living in poverty also growing.2

The research

The research, Benefit Cuts by Household Type, considers the full set of social security spending changes announced by the government since 2010, including forecasting how the introduction of UC changes the picture further. The analysis looks at the position of working, non-working and pensioner households, comparing how they would fare under previous and new government rules, in order to look broadly at how new claimants would fare under each system – ie, not taking account of any transitional protection.

As a starting point, the research shows that by the end of this Parliament, £36 billion a year will have been cut from social security spending since 2010. Under UC, families are set to lose just over £5 billion more compared to the system before it is introduced (although it is acknowledged these figures may be slightly overstated as no estimates of increases in take-up are made). A much more stark finding, however, is that the majority of cuts are falling on people of working age in employment (58.6 per cent overall). If pensioners are removed from the analysis and only working age families are considered, the extent of cuts falling on working families becomes clear at 72.4 per cent overall.

Whereas the government’s often most discussed welfare reform is the benefit cap, projected to save £500 million a year, the single biggest area of spending cuts announced are to child and working tax credits at £13.8 billion annually, with over 90 per cent hitting working families. Those in work also bear over 90 percent of cuts to child benefit, losing £3.4 billion a year by 2016/17. These reductions are further exacerbated by changes announced in June 2010, where the inflation index used to increase benefits every year changed from RPI to the lower CPI measure, and then by only 1 per cent per annum from April 2013.3

CPAG report

These cuts are clearly having significant impact on low income working families and are particularly alarming in light of a recent CPAG report, The Cost of a Child 2014, which showed that many working families face a significant shortfall in income to meet their basic needs.4 Families in which all parents work full-time on the national minimum wage now have only 82 per cent (couples) or 87 per cent (lone parents) of the minimum income required to meet their needs. We believe that whichever government is elected in 2015, it must properly address the issue of in-work poverty as an absolute priority, if work is truly to be seen to pay for all.

 


 

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