Freezing working-age benefits could save the Treasury billions but 'at a cost'
A think tank has warned that freezing working-age benefits next year could save the Treasury over £4 billion, but at a "terrible cost" of pushing an extra 400,000 children into poverty.
The Resolution Foundation revealed that scrapping the uprating of working-age benefits in line with price inflation next year would reduce the incomes of nine million households by an average of £470.
The move, reportedly being considered by the Chancellor, could also force an additional 400,000 UK children into absolute poverty.
According to calculations published in a briefing document on Saturday, researchers at the foundation said such a decision could save Chancellor Jeremy Hunt as much as £4.2 billion in what is likely to be his final Budget in the spring before a general election.
Mr Hunt is under pressure from right-wing Tory MPs to come up with tax cuts before the UK goes to the polls. Reports last month suggested that Treasury officials were considering real-terms benefits cuts as part of cost-saving options being drawn up in time for the autumn statement in November.
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The Consumer Prices Index (CPI), a measure of inflation, figure for September - due to be published on Wednesday - is what ministers traditionally base any April rise in working-benefits on.
The Office for National Statistics has revealed that the Consumer Price Index (CPI) was at 6.7% in August, with September's rate expected to be similar. Lindsay Judge, research director at the Resolution Foundation, shared: "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."
She added: "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."
Judge also warned: "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."
The Resolution Foundation highlighted that any cash freeze to benefits next year would mirror a policy implemented between 2016-17 and 2019-20. A recent study found that freezing the cash value of Universal Credit entitlements next year could save around £2.9 billion.
The same study suggested that also freezing other "non-protected" working-age benefits (such as child benefit, jobseekers' allowance, tax credits and statutory maternity and paternity pay) could save around £4.2 billion.
The think tank has warned that if the benefit uprating is scrapped, it will affect the incomes of 45% of working-age households. This comes at a time when Britain is already dealing with a cost-of-living crisis.
Researchers gave an example of a working couple with two children who receive Universal Credit. They said that this family could see their annual income reduced by £1,241.
Even if the uprating does go ahead, the poorest half of the population could see another fall in disposable income of around 1% next year. This could push a further 300,000 people into absolute poverty.
A Government spokeswoman stated: "We increased benefits by over 10% this year in order to protect the most vulnerable from the impact of high inflation."
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She added: "As is the usual process, the Secretary of State will conduct his statutory annual review of benefits and state pensions in the Autumn, using the most recent data available."
The Treasury has also been asked for a comment.
* An AI tool was used to add an extra layer to the editing process for this story. You can report any errors to [email protected]
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