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13 October 2022

Whatever Liz Truss says about welfare cuts, benefits are already in tatters

The Prime Minister may change her mind and raise Universal Credit with inflation, but the damage has been done in years of caps and freezes.

By Anoosh Chakelian and Aisha Majid

What would you do with £40 extra a week? It’s something many households that need benefits can only dream of, as a winter of spiralling costs draws closer. But if basic benefit levels had grown with the economy since 1991, standard social security payments would now be £40 a week higher than they are now. It looks like growth – Liz Truss’s watchword – isn’t as much of a priority when the government decides what (not) to do with its proceeds.

Basic benefit levels have fallen rather than risen in relation to GDP per capita over the last 30 years, equating to that shortfall of £40 a week, as revealed last year by the Resolution Foundation, a living standards think tank.

With inflation on the rise, the Prime Minister has hinted that benefits may only rise in line with wages, rather than prices, when they are updated next April. This would mean abandoning a pledge made by the last administration to put them up by this September’s inflation rate (around 10 per cent). Even this promised increase was considered far too late by those struggling with rising prices this autumn.


Truss is reported to be considering a U-turn after a wave of internal opposition. As I have reported, it is unlikely that Tory MPs and even cabinet ministers would let her hold the benefit increase below inflation; breaking the last government's would cost a typical low-wage working family with two children more than £700 a year.


[See also: Britain braces itself for the devastation of austerity 2.0]

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Universal Credit claimants will still be hit by measures in the mini-Budget. Hundreds of thousands of people on low wages will have to spend six hours longer a week from January actively searching for more or better-paid work, or be sanctioned. And whether welfare payments rise with prices or earnings, the poorest families will suffer the biggest drop in real-terms income, according to the latest Resolution Foundation research.

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Even if welfare payments do end up rising with prices next April, they should be much higher. Caps and freezes for over a decade have relentlessly cut them in real terms. In 2013 increases to working-age benefits and tax credits were capped at 1 per cent for three years. The same year housing support for private renters was uncoupled from rental prices. Local housing allowance (housing benefit for private renters) is still frozen at March 2020 levels. In 2016, a four-year freeze on most working-age benefits and tax credits came in (with disability-related benefits exempt).

The freeze ended in 2020-21. Benefits were boosted by £20 a week temporarily during the pandemic, but that uplift was cut last October: the biggest overnight cut to benefits since the creation of the welfare state after the Second World War.

[See also: Will the £20 Universal Credit cut become Boris Johnson’s government’s worst decision?]

When benefits only rose by 3.1 per cent in April this year, despite the 9 per cent inflation rate at the time, the poverty charity Joseph Rowntree Foundation calculated that basic welfare payments were at a 35-year low in real terms.

The value of many benefits has been falling in real-terms for years, with unemployment benefit in 2022-23 worth less than it was in 2000, according to the Resolution Foundation.


On top of all this is the infamous benefit cap, introduced by the coalition government in 2013. This is a limit on the maximum amount a household can receive in benefits. It has never been increased. In fact it was lowered in 2016 to £20,000 a year for couples or lone parents (£23,000 in London) and £13,400 a year for single adults (£15,410 a year in London). By law, the government has to review its level at least once in a parliamentary term. A spokesperson for the Department for Work and Pensions could not give the New Statesman a date for the next review.

Humans need a certain level of income to survive and participate in society – what academics deem the “minimum income standard”. The safety net has covered less and less of this standard since 2008 (basic benefits now cover only 37 per cent of it for an average working-age couple), and has never been linked to it. As a proportion of average earnings, the basic benefit level is set to fall below 14 per cent in 2024-25, half the level it was in the 1970s, according to the Resolution Foundation.

As Steve Webb, a Lib Dem work and pensions minister in the coalition government, said in 2005: an alien arriving from Mars would assume our benefit rates were set according to something concrete, like a minimum liveable household budget. “In fact, they appear to be based on what they used to be, plus a bit.”

Nearly two decades later, welfare is further adrift from people’s actual needs – “plus a bit” is now “minus a bit”.

[See also: “It polled off the charts”: the benefit cap is for popularity not saving money, claims former Tory welfare minister]