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17 October 2013updated 23 Oct 2013 8:54am

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.

By Lindsay Judge

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.

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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.  

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