Almost half a million additional people are likely to be in poverty by 2020/21 as a result of the four year freeze on benefits combined with higher-than-forecast inflation, according to a new report by the Joseph Rowntree Foundation (JRF).
The report estimated that, as a result of the drop in the value of the pound and sharp increase in prices following the Brexit vote, 470,000 additional families will be in poverty by the end of the benefits freeze. Incomes, it said, are not keeping up with prices, despite the fact that the UK is experiencing record low unemployment levels.
The November budget “must ensure the incomes of the least well-off keep pace with the cost of essentials by removing the freeze and uprating income-related benefits with consumer price index (CPI) from April 2018, and the local housing allowance with local rents,” said the report. The freeze, it said, is the “biggest policy driver” behind the expected rise in poverty.
In the summer of 2015 a freeze on most benefits was announced for working-age people between 2016/17 and 2020/21, including benefits to top up low earnings. But the report stressed “circumstances have changed” since 2015, with the freeze now exacerbating the effects of higher than expected inflation and a decline in real wage growth.
“I have laid awake at night thinking, ‘how am I going to pay for this?'” Julie told the JRF. “You can’t shop around for your council tax, the only other things you can cut down on are food and fuel.”
According to the report, more than half the people experiencing poverty are living in working households, while three in four people have been unable to escape low pay over the decade. As such, the JRF recommends targetting income-related benefits such as tax credits and Job Seekers Allowance, rather than more widespread benefits such as child benefit.
The private rented sector is “fast becoming the tenure that houses people in poverty,” said the report, with the number of people in poverty after paying private rental costs having doubled in the decade between 2004/05 and 2014/15.
In central London, Local Housing Allowance (LHA) only covers 55% of the 30th percentile rent (the upper limit for what LHA will cover), creating a shortfall of over £1,000 per month.
The JRF recommends removing the freeze on income-related benefits and uprating them with CPI inflation from 2018/19. This, it said, would result in 380,000 fewer people in poverty in 2020/21, largely families with children, and would cost £2.8 billion.
Meanwhile, uprating just the child related elements of Universal Credit from 2018/19 would cost around £1 billion in 2020/21, and result in 100,000 fewer people in poverty, while uprating the LHA with local rents would help 4.7 million people who experience poverty after paying household costs.
In February, the JRF warned that nearly a third of the population, or 19 million people, were below the “minimum income standard,” an increase of 4 million people since 2008/9.