By Claire West
As expected, the chancellor has confirmed that benefit uprating will be frozen at 1 per cent for the next three years, preventing them from rising in line with inflation (currently about 3 per cent).
Breaking the historic link between benefits and the cost of living is a very serious step and one which will hit the poorest hardest.
Apart from the potential savings, Osborne argues that this change is about being ‘fair’ to workers whose earnings have not risen in line with the cost of living.
Low pay is an issue, but freezing benefits does not tackle the problem. In fact, it may even make it worse.
There are four important points to remember:
1. Osborne is creating a race to the bottom, arguing that if wages are not keeping up with inflation, neither should benefits. So ‘fairness’ is that all of the poor (in-work and out-of-work) get poorer. So that more and more people find they are unable to buy the food and fuel they need to get by. The real problem here is poorly paid work, which affects 1 in 5 people working in the UK.
There are steps we can take to make pay fair and end in-work poverty, but freezing benefits is not one of them. This is not a way to drive up wages. Frozen benefits will make the risk associated with losing your job even greater and make it even less likely that low paid workers will have the confidence to bargain for better pay.
2. Current benefit payments are far from extravagant, in fact they are set at a level below what is needed for a minimum, socially acceptable quality of life.
The Joseph Rowntree Foundation calculated a Minimum Income Standard, based on what people (from a wide cross-section of the public) said is needed to achieve an acceptable standard of living in Britain today. Calculated in April 2012, this meant:
a pensioner couple needs £232;
a single working-age adult needs a budget of £193 per week;
a couple with two children needs £455;
and a lone parent with one child needs £276.
These amounts are after income tax, and do not include housing or childcare costs. Most people relying on basic out-of-work benefits do not reach this standard. A single person on Income Support gets less than half. Out-of-work families with children typically get two thirds. Even without cutting ties with inflation, our benefit payments are already failing to ensure that people can live at a minimally acceptable level.
3. The freeze will take away from the poorest, who are already struggling.
If benefits cannot rise more than 1 per cent when inflation is nearly 3 per cent (CPI is 2.7% and RPI is 3.2%), more and more people will find that they can cover fewer and fewer of their weekly needs. Families may be worst hit. As our work on latest report shows, people are already making impossible choices — between food and fuel, eating and being warm. Three new food banks are opening each week to provide emergency support for households that cannot afford to stock their kitchen cupboard. Large increases have already been seen in the demand for debt and money advice. The need is only going to get greater. Osborne says that he ‘knows how many families have struggled with the cost of living’. His decisions say otherwise.
4. The savings that will be made are relatively small.
Freezing all benefits could save £2.5 billion (the Chancellor says £3.7 billion in 2015/16), coming out of the pockets of those already struggling to make ends meet. To put this in perspective, tax evasion (the illegal one) is currently costing the UK an estimated £70 billion a year. Tax avoidance costs around £25 billion. There are some figures in this short film (at 1:14 minutes) which also shows why the government needs to go much further than just tax evasion settlements to address this problem.
We need clear thinking on welfare and work based on principles of social justice and on effective use of our resources. This is where we should begin, rather than with the imperative to cut social security budgets.
Social security is one important part of our state, but we must also think more broadly about the resources we can draw upon to create a new social settlement. For more on this, read our latest report on the future of the welfare state: Beyond Beveridge.