When the chancellor stands at the dispatch box to deliver the Budget next week, it provides the government with a crucial moment to show it is on the side of the ‘just about managing’.
Currently there is little sign of any respite for low-income families, with inflation rising to a five-year high, wages stagnating and most working-age benefits being frozen for four years. As prices rise many families are unable to make their household budgets stretch.
The Institute for Fiscal Studies projects that an additional 1.2 million children are likely to be living in poverty by the end of the parliament. Changes to tax and benefits, including the four-year freeze, are a key driver behind these predicted rises.
The chancellor must take immediate action to ensure these alarming figures do not become a reality. Otherwise, the UK’s record of tackling poverty is at risk of unravelling. Getting the welfare system right and boosting living standards for millions of people on low incomes is therefore vital.
There are three ways the chancellor can do this.
First, the Budget should end the freeze on working-age benefits. Although it is a policy that has attracted little scrutiny, the freeze is the single biggest policy driver of the expected rise in poverty. This policy, introduced by George Osborne, means there will be half a million more people in poverty in 2020-21 than there would have been had benefits kept pace with the rising cost of living. Indeed, because benefits haven’t kept up with prices since 2010, a family of four on universal credit will be more than £800 per year worse off in 2020, even if both parents are working full time on the national living wage.
Second, the government must get universal credit right. In recent weeks there has been mounting pressure on the government about the roll out of universal credit. The system itself has been created with the correct aims of simplifying the system, incentivising people into work and ensuring a smooth transition for people in and out of work. These are prizes worth having, but there are deep-rooted design issues that need addressing before it can achieve its full, poverty-fighting potential.
The six-week waiting time before someone can receive their first universal credit payment is a clear example of a fault in the design of the system rather than just poor administration. This is too long to wait as 69% of these families have no savings to fall back on. This is leading to a greater risk of debt, destitution and eviction. There are relatively straightforward ways the six-week waiting time can be reduced. The first would be to end the arbitrary seven-day period that claimants are expected to wait at the beginning of a claim. During this time they are not eligible for universal credit. One of the rationales for universal credit is it prepares people for working life. However, there are no jobs which would require someone to work the first week for free. The problems associated with the waiting period could also be tackled by introducing greater claimant choice and control over the frequency of payments. Allowing claimants some flexibility would likely improve their ability to manage their money responsibly and could shorten their initial wait if they choose fortnightly.
Third, the government should target support at families on low incomes by allowing people to keep more of what they earn before their benefits start to be withdrawn. Despite the government’s policy of raising the personal tax allowance and introducing a higher minimum wage, some low-income families risk seeing their living standards falling by the end of the parliament because of cuts to the work allowance and the benefits freeze. In a time of limited resources, it is important that the government focuses on targeted policies that will benefit the worst-off people the most. That is why plans to raise the personal tax allowance should be delayed or cancelled, as only £1 in £6 of this spending goes to households in the bottom half of the income distribution.
Pressure is rising on low income families, politics is unstable and government energy has been focused on Brexit. But no administration wants to fight an election on the back of falling living standards. The Budget means the government still has time to get it right and make sure work genuinely does pay.
Campbell Robb, chief executive, Joseph Rowntree Foundation