If the government increases benefits in line with incomes instead of inflation next year, it would dramatically reduce incomes for the poorest working-age families, while saving less than a tenth of the cost of recent cuts of taxes, an important economic think tank has calculated.
Such a change, which would be a significant cut in real terms as wages rise at 5.5% with inflation close to 10%, could reduce the effective income of some families by up to £1,000 a year , the Resolution Foundation said.
In a report, he said this decision would end up saving around £3bn in 2026-27, while the tax cuts announced in Kwasi Kwarteng’s mini-budget would cost around £40bn, even now that a d ‘else, removing the top 45p rate of tax – has been reversed.
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While ministers appear committed to increasing pensions in line with inflation under the so-called triple lock upgrade, suspended last year, they have yet to decide whether the same will apply to age benefits labor
Jacob Rees-Mogg, the business secretary, said on Wednesday that no decision would be made before the next release of inflation statistics, due in a week. Some Tory MPs, including other cabinet ministers, support an increase in line with inflation.
If the increase in in-work benefits, such as universal credit, were to be made at the lowest earnings-related rate, this would affect 9 million UK households, or 45% of those with working-age people , the Resolution Foundation said.
The impact would vary considerably. The report estimates that a couple with one child who only receive child benefit would lose £52 a year. A single disabled adult on Universal Credit would lose £380.
The biggest effect would be on low-income families with children. A working couple with three children would lose £978 a year, he said.
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Since these benefits have failed to keep pace with inflation for nine of the past 12 years, if the lower increase comes in April, a typical person in the poorest quintile would see their income drop by 11%, returning to last observed levels. in 2000-01.
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This, according to the think tank, would also increase the number of people living in absolute poverty, defined as less than 60% of the UK median income.
It is already predicted to increase by 2.9 million people between April 2021 and April 2024, going from 17% of the population to 21%. The smaller increase in benefits would add 600,000 more people, according to the report, including 300,000 children.
Adam Corlett, chief economist at the Resolution Foundation, said: “These cuts would come at a time when families are already set to struggle with rising prices, rising mortgages and the end of support schemes storm.
“With benefits repeatedly failing to keep pace with inflation over the past decade, this would see real income levels for the UK’s poorest families fall to levels not seen since the crash century”.