Andy Cook is Chief Executive of the Centre for Social Justice.
With inflation set to soar to over 10 per cent this year and remain above the Bank of England’s 2 per cent target for a further two years, the need for the Prime Minister and Chancellor to tackle the cost of living crisis with a workable policy solution is more urgent than ever.
Over the course of 2022, the average household is due to find itself £1,200 worse off in real terms, and we know that it is the very poorest who will suffer the very worse effects. Most startlingly of all, people who rely on Universal Credit (UC) are experiencing a drop in their incomes of 7 per cent once inflation is factored in. These are the households who can least afford such a hit. These are people who are not cutting back on how many Deliveroos they order a month, but choosing between heating and eating.
Many organisations have called on the Chancellor simply to restore the £20 per-week uplift to UC standard allowances, introduced as an emergency measure at the start of the Covid pandemic. This measure helped get extra financial support to millions at a time when many were losing their jobs or seeing their incomes fall.
This is not, we suggest, the best way to alleviate cost of living pressures on the very worst off.
To recap, as recently as two weeks ago the appetite in Whitehall was still, it seems, focused on non-fiscal measures. Cabinet ministers were tasked with pulling a rabbit out of a hat to ease spending pressures on families, with the catch that it couldn’t cost any money.
Since then, thankfully, the mood music seems to have changed, and now financial interventions – including putting more money into UC – are being actively considered. The Prime Minister has said the Government is now prepared use the “fiscal firepower” of above-forecast tax receipts from fiscal drag to respond to the scale of the squeeze facing families.
We would encourage the Chancellor to look to UC as the most efficient and best-targeted system for getting support to those who need it most. We also concur with the Prime Minister in his message that being in work is the best defence anyone can have against the rising cost of living.
UC is a hand-up, not a hand-out, linking benefits to work and ensuring that work pays. It is a thus far more than a sticking plaster: recipients sign a claimant commitment in which, if they are able, they commit to search for work. They have access to a work coach and JobCentre Plus. This is crucial for getting people into the record number of vacancies in our economy and helping people progress within work.
The CSJ supported retaining the £20 uplift to UC standard allowances last year as a politically feasible way of retaining sufficient financial support to those most in need. However, we also argued that the money it would cost to embed the uplift could – if the Treasury were minded – be spent in more effective ways.
These included a cut to the UC taper – a policy we saw implemented by the Chancellor in the Autumn Budget – and an increase to work allowances; a proposal we are reiterating now. We also, as now, called for the roll-out of the completion of Universal Credit in the form of Universal Support.
In our recent paper, Alleviating the Crisis, the CSJ calls for a special fiscal event to be held at the end of this quarter and for an emergency uprating of UC in line with inflation. For the duration of this level of price volatility, we believe that reviews to the rates of benefits must take place much more frequently.
This would cost more than a billion less than bringing back the £20 uplift, with the inflation shield we propose costing an estimated £3.1 bn. The Chancellor is rightly seeking to observe fiscal prudence. He is also mindful of the need for fairness. Restoring the £20 would for the average household on UC be a 13 per cent – above inflation – increase in incomes. Many who do not benefit from UC are not getting a pay rise anywhere near this high. Bringing UC into line with inflation would effectively keep it at the same level in real terms, retaining fiscal discipline while also helping the poorest to keep up with the rising price of essentials.
Our proposal is also better targeted. As a percentage rise, those with a higher UC entitlement will gain more, while those who are in less need and have a smaller award will gain less. Under the £20 uplift, every claimant received the same additional amount regardless of need.
But we also recognise the struggles faced by those who are on the lowest incomes, but in work (of which there are roughly 1.67 million households on UC). As such, we are also asking the Chancellor to consider a £730 million ‘tax cut’ for the poorest working families by restoring UC work allowances to pre-2016 levels. This would allow those who are in work but on very low incomes to keep more of what they earn, delaying the point at which their benefits start being withdrawn.
There are more things the Government can do. Socialising the cost of renewables projects by taking green levies off household bills could save households £200 each. And more frequent price cap reviews would help us all to plan, eliminating the cliff-edge bill hikes we have witnessed this year.
Universal Credit is world-class social security infrastructure and the best mechanism for getting help to the poorest, placing work at the heart of tackling poverty. The Chancellor has said he “stands ready to do more” to help families through the turbulence. We call on him to make use of Universal Credit’s potential.