The damage of Osborne's cap on benefit increases is now clear

The new inflation figures show that it is under-indexation that will drive up child poverty rates inexorably.

At first glance, September’s inflation figures released this week don’t seem particularly newsworthy – that CPI is now running at 2.7 per cent is nothing really to write home about. But for the six million families in the UK who receive benefits of some kind or another, these rather dull figures are in fact highly significant.

Cast your mind back to the Autumn Statement last December when George Osborne announced that most working-age benefits and tax credits would no longer track prices, but instead would be uprated by a nominal 1 per cent for the next three years. As September’s figures are the traditional reference point used to uprate benefit levels, the figures published yesterday tell us how bad the damage done by this policy in its first year will be.

So, a family with two children will lose almost £39 of the value of their child benefit in 2014/15; parents with two children will see their child tax credit eroded by over £100; and low-paid families claiming working tax credit could lose as much as £66 over the same period. Not huge cuts perhaps? Tell that to families living with tight margins and for whom this represents a rather large proportion of income. These losses will be compounded by subsequent losses, and unless benefit levels are over-indexed in the future, they are locked in forever.

The pain is more acutely felt, perhaps, because there is a perfect model for maintaining the value of benefits. The triple-lock is the acme of uprating mechanisms, ensuring the basic state pension risesin line with earnings, prices or a minimum of 2.5 per cent, whichever is the higher. It’s the ultimate poverty-protector, rightly ensuring that older people’s living standards don’t drift away from the mainstream over time.

Working-age benefits have never been similarly privileged. Instead, they have a chequered history of being uprated with reference to a bewildering range of indicators: by earnings (in the 1970s), a mix of RPI and related indexes (1981 onwards), and CPI (from 2010). In contrast with pensions, there is no stable settlement for children’s benefits, leaving them based on ad hoc decisions about what can be afforded in the very short term.

Technical? Yes. Boring? A bit? But important? For sure. Contrary to popular perceptions, it is not cuts like the bedroom tax or the benefit cap that will impoverish one million more children by the next decade. Instead, as analysis from the Institute for Fiscal Studies makes clear, it is decisions about uprating that underpin this trend. Under-indexation is the engine that will drive up child poverty rates inexorably - until, that is, there’s a government prepared to put a spanner in the works and reset the machine for good.  

Two young boys play in a run down street with boarded up houses in the Govan area of Glasgow. Photograph: Getty Images.

Lindsay Judge is senior policy and research officer for the Child Poverty Action Group.

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.