600k households worse off until 2025 as benefits fail to keep up with inflation
Hundreds of thousands of struggling Brits will be worse off until 2025 as benefits payments fail to keep up with inflation.
More than 600,000 working-age households on means-tested benefits will still have less income in 2023–24 than if benefits had simply kept pace with inflation - despite the flat-rate cost of living payments, the Institute for Fiscal Studies (IFS) warned.
The annual uprating of benefits in April will "merely take them back to around the real level they were at a year earlier", it found.
Benefit rates are tied to out of date inflation measures, meaning real benefits rates were 7.6% lower in 2022 compared to pre-pandemic levels - and will be 6.2% lower in 2023 and 2% lower in 2024.
"Astonishingly, it is not until April 2025 that benefit rates are set to recover the ground they lost over the autumn and winter of 2021 due to lags in uprating them with inflation," the IFS said.
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The respected thinktank said hundreds of thousands of people could actually be better off if they were paid less due to the way the Government's cost-of-living payments will work.
And some £2billion more will be spent in 2023-24 on recipients of means-tested or disability benefits through the cost of living payments than if benefits had been raised in line with inflation, it found.
Benefit rates are tied to out of date inflation measures (Getty Images/iStockphoto)The report found that lowest-income households are almost three times as exposed to energy costs as the highest-income households.
Report author Sam Ray-Chaudhuri branded cost of living payments a "crude patch" which is "no substitute" for fixing the problem at source.
While childless families with no-one in paid work and on Universal Credit "tend to do especially well out of the crude, flat-rate arrangement", almost half of all families with three or more children on means-tested benefits would have been better off if the Government had not introduced cost-of-living payments, the think tank said.
It suggested that instead the Government needed to ensure normal benefits kept pace with inflation.
They described the cost-of-living payments as "crudely targeted" and warned they will "create 'cliff edges' in the system".
The report stated: "Receipt of each of the three £300 instalments of the payment will be contingent on having been a universal credit recipient in a specific prior month.
"We estimate that, as a result, in each of the three relevant months there will be around 825,000 people who earn slightly more than is consistent with universal credit eligibility and who, as a result of missing out on the cost-of-living payment, end up with less income than other similar people who earn less.
"Equivalently, they could increase their own income were their earnings to be slightly lower."
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Mr Ray-Chaudhuri said: "Income from the state is typically price-indexed, or better. One might, therefore, have thought that those who get income from the state would be much more comprehensively protected from the spike in inflation than other groups.
"But that would be to oversimplify considerably, because benefits are increased in line with out-of-date inflation measures.
"The introduction of universal credit offered an opportunity to rectify this administrative anachronism, but it has not been taken.
"It was clear as soon as inflation surged in Autumn 2021 that deficiencies in benefit uprating procedures, if not remedied, were going to cause problems for claimants and policy headaches for government.
"It is high time that the Government got ahead of this entirely foreseeable problem, and brought its way of price-indexing benefits into the 21st century.
"The crude patch that it will apply over the problem in the next financial year, in the form of cost-of-living grants, is no substitute for fixing it at source. And under current inflation expectations, benefits will still not have entirely regained their real value until April 2025."
A Department for Work and Pensions spokesperson said: "This year we are increasing benefits and the state pension in line with September's inflation rate of 10.1%, but we recognise the pressures of the rising cost of living, which is why we also delivered £1,200 of direct, targeted support to millions of vulnerable households last year, and will be providing a further £1,350 of support in 2023-24.
"In addition, our Household Support Fund continues to help people with essential costs."
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