Freezing working-age benefits next April would save the Treasury up to £4.2 billion but plunge an additional 400,000 children into poverty

Scrapping the uprating of working-age benefits in line with prices next year would reduce the incomes of nine million households by an average of £470 and push an additional 400,000 children into absolute poverty, according to new research published today (Saturday) by the Resolution Foundation.

The CPI inflation figure for September, published next Wednesday and forecast by the Bank of England to be 6.9 per cent, would normally be used by the Government to calculate next April’s working-age benefit uprating.

However, the Government is reportedly considering a departure from standard practice and under-indexing working-age benefits – the fifth time this would have been done in the past decade. In contrast the UK state pension, protected by the triple lock, will increase in line with average earnings (8.5 per cent) in April 2024.

The Foundation warns that scrapping the benefit uprating would hit the incomes of 45 per cent of working-age households (nine million in total), at a time when the outlook for living standards is already bleak. This would include six-in-ten (62 per cent) working-age households where at least one member has a disability (4.4 million households); almost three-in-four (73 per cent) couples with children (4.2 million households); and more than nine-in-ten (93 per cent) single parents (1.7 million households).

Looking at the scale of savings the Treasury could make and the income losses families could face, the Foundation’s research models the impact of a cash freeze to benefits next year – a return to the policy implemented between 2016-17 and 2019-20.

The authors find that freezing the cash value of Universal Credit (UC) entitlements next year would save around £2.9 billion, while also freezing other ‘non-protected’ working-age benefits (such as Child Benefit, Jobseekers’ Allowance, tax credits and Statutory Maternity and Paternity Pay) would save around £4.2 billion.

The Foundation’s research finds that this would constitute an average income hit of £470 a year.  For 4.7 million households, including 1.4 million single parent households and 3.2 million households containing at least one member with a disability, losses would exceed £500 a year. For example, a working couple in receipt of UC with two children would see their annual income reduced by £1,241 should the freeze go ahead.

Finally, the Foundation warns that the decision on whether to uprate benefits in line with inflation comes at a time when lower income households’ incomes are already set to fall. Even if the uprating goes ahead, the poorest half of the population are on track to see another disposable income fall of around 1 per cent next year, with a further 300,000 people set to fall into absolute poverty.

A benefit freeze would greatly worsen that bleak outlook, the Foundation says, leaving the poorest fifth of households on track to see income falls of between five and eight per cent next year (compared to between 1 and 3 per cent if benefits were uprated in line with prices). This would see an additional 400,000 children fall into absolute poverty.

Lindsay Judge, Research Director at the Resolution Foundation, said:

“The Government is reportedly considering returning to a tried-and-tested way of saving the Exchequer money, by not uprating benefits in line with prices next year.

“This policy could save the Government up to £4.2 billion, but it would come at a terrible cost – reducing the disposable incomes of nine million families by an average of £470 a year and plunging up to 400,000 more children into poverty.

“At a time when the incomes of the poorest half of the population are already set to fall next year, failing to uprate working-age benefits in line with prices would be hard to defend, deepening a cost of living crisis that is already hitting low and middle income households the hardest.”