Millions will be worse off after below-inflation universal credit rise, say experts

Analysis finds 9 million low income families will be £500 a year poorer on average from April

Nine million low income families will be £500 a year worse off on average after the planned below-inflation increase in universal credit and other means-tested benefits are introduced in April, experts say.

The Joseph Rowntree Foundation (JRF) said setting benefit rises at last September’s 3.1% level, when inflation is forecast to hit 7% by April, would result in widespread hardship, push 400,000 people into poverty, and ratchet up pressure on households hit by the cost of living crisis.

Couple families with children who are on low incomes, both in work and out of work, would experience a real terms cut of £500 a year, while pensioner couples would lose £540 a year, according to the JRF analysis.

It comes four months after a £1,000 cut to the incomes of households on universal credit when the £20 a week top-up to help claimants deal with the extra costs of Covid was withdrawn, and will hit families just as soaring energy bills start to bite.

JRF estimates that the net cost of uprating benefits by 7% would be £7.5bn.

“At a time when the case for support could not be clearer, the government is choosing to further erode the value of benefits that are already wholly inadequate,” said Peter Matejic, deputy director of evidence and impact at JRF.

He added that this was another cut for millions of people when the value of out-of-work benefits was at an all time low. “There can be no justification for this. Our social security system should protect people from harm, not put them in danger,” he said.

Meanwhile, a Tory peer and former minister has urged the government to support struggling families in the form of cash top-ups paid via universal credit, which he called a “really efficient way of directing funds to the poorest”. Lord Freud said it was a mistake to cut the £20 a week top up to universal credit in October when it was “clearly needed”.

Freud, who oversaw the introduction of universal credit while minister for welfare reform in the Department for Work and Pensions (DWP) between 2010 and 2016, also savagely criticised government policies such as the two-child limit on benefits and the benefit cap introduced during his time in office.

Freud told an audience at the Legatum thinktank on Wednesday that the two-child limit was “vicious” and an “excrescence” that – like the benefit cap – should be scrapped. He also criticised cuts to local housing allowance support for low income tenants in the private rented sector.

Freud, who was promoting his memoir, Clashing Agendas, of his time at DWP, said those policies – and other cuts such as those to disability benefits – had been forced on a reluctant DWP by the Treasury as the price of introducing universal credit.

The JRF said too many families were already going without essentials because of increases in the price of food and other basics. The removal of the energy price cap in April could increase low-income families’ gas and electricity bills by an average of £566 a year.

It is calling on the government to upgrade benefits in line with the Bank of England’s February forecast of 7%. “At the very least this would stop this real-terms cut to benefits and protect families on the lowest incomes from the worst impacts of rising costs.”

The government is understood to favour maintaining the September inflation reference point for benefit uprating on the grounds that this would ensure balance and consistency over time.

A government spokesperson said: “We know this has been a challenging time for many people, which is why we’re providing support worth around £12bn this financial year and next, to help households with the cost of living.

“This includes putting an average of £1,000 more per year into the pockets of working families via changes to universal credit and boosting the minimum wage by more than £1,000 a year for full-time workers.”

Jonathan Ashworth, the shadow work and pensions secretary, said: “Working people and families have already been hit by the £20 cut to universal credit, rocketing heating bills and price rises in the shops.

“At a time when so many are struggling, the cost of living crisis is set to be exacerbated by further deep real-terms cuts to support like universal credit this April. These are choices by ministers who refuse to acknowledge that inflation will cause devastating hardship for so many.”


Patrick Butler Social policy editor

The GuardianTramp

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