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21 July 2016updated 25 Jul 2016 2:38pm

The Brexit benefits timebomb is ticking for poor working families

The May Government continues Universal Credit and the benefits freeze. 

By Julia Rampen

In her first speech as Prime Minister, Theresa May addressed the families who are “just managing”. 

She declared: “I know you’re working around the clock, I know you’re doing your best, and I know that sometimes life can be a struggle. 

“The Government I lead will be driven not by the interests of the privileged few, but by yours.”

What May didn’t mention is that such a family may be working all hours, but they are probably reliant on tax credits too. 

And for Mr and Mrs Just Managing, the years post Brexit will introduce a new reality – the creeping reduction in benefits. 

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Theresa May’s Government could have abolished Universal Credit. The reform has been widely criticised – the shake-up of thresholds means that for certain groups, such as single mothers, it makes work less attractive. The roll out has been delayed, meaning that most politically sensitive demographics are still on the old system. 

But she didn’t. Instead, she has kicked Universal Credit into the long grass, with the final deadline now pushed back to 2022. The benefits reform will continue to roll out and start to affect families in larger numbers. 

For some families, this means losing all in-work benefits altogether. A forecast slipped out by the Office for Budget Responsibility predicted 690,000 households would lose out by 2020. By contrast, just 200,000 will gain it. 

Indeed, when George Osborne famously U-turned on tax credit cuts, savings were passed onto Universal Credit instead. Owen Smith, the Labour leadership challenger, has described Universal Credit as a “vehicle for austerity”. 

Another longstanding Osborne policy is also likely to start to bite. Unless May dramatically overhauls policy, the freeze on working-age benefits means that the Just Managings have little protection against inflation. 

When the current four year freeze began in April, the OBR estimated it would lead to a 6.1 per cent fall in real term value of benefits by 2020. 

But if Brexit triggers rising prices, as expected, the Resolution Foundation now predicts the value of benefits in real terms will slump as much as 12.5 per cent. 

Resolution’s senior economic analyst David Finch said: “The impact of the four-year benefit freeze now in train has been little discussed – in part because of the tax credit furore and also because very low inflation means it hasn’t really bitten recipients yet. 

“But post-referendum that is likely to change, with expected higher inflation potentially doubling the freeze’s impact on spending power.”

Add in lower real wage growth, he added, and the squeeze on living standards will only tighten. 

May could reverse Osborne’s policies – one of her first moves was to sack him after all. But the financial climate suggests she will have little money to play with, and she appears more likely to favour investing in spade and shovel infrastructure projects than topping up the wages of the working poor. 

Both Universal Credit and the benefits freeze are already in motion. May has not expended any political capital on them, but she will reap the savings all the same. Meanwhile, the Just Managings may find they are not managing at all. 

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