The Welfare Benefits Up-rating Bill was announced following the Chancellor’s Autumn Statement in December. It will introduce a cap of 1% for three years from 2013/14 on most working-age benefits and tax credits. MPs debate the Bill on Monday 21st January 2013.
The saving made through this bill equates to 0.9% of the welfare budget by 2015/16. Contrary to popular belief, spending on welfare as a proportion of GDP has been stable over the past ten years until this recession hit, and the value of unemployment benefits has fallen from 21% of average earnings in 1979 to just 11% in 2010. Much of the increase in welfare spending since 2010 has been on pensions.
At the same time, living costs are spiralling. Since 2004 energy costs have risen by 100% and over the last five years, food costs have risen by more than 30% . The UK government predicts that unemployment will remain at the peak of 8% during 2013.
Furthermore, these cuts will not only affect individuals receiving the benefits, but will also impact on the Scottish economy: this change means £210 million less being spent in local shops and other businesses. This is on top of the £2.5 billion being taken out of the Scottish economy due to other welfare reforms.
Uprating by just 1% is an equivalent real-terms cut of 4%. Nearly ten million households – the equivalent of 30% of all households will be affected . The poorest families will lose the most.
The majority of working-age households in receipt of state support will be affected by this policy, with an average loss of around £3 a week compared to CPI up-rating. Households towards the bottom of the income distribution are more likely to be affected and have a slightly higher average change because they are more likely to receive the affected benefits.
It marks an end to the link between benefits rises and inflation, and leaves the poorest in society at greatest risk from future inflationary pressures. This Bill will have a disproportionate effect on certain groups, particular disabled people and women. The cumulative impact of this change on top of all the other welfare reforms will be severe. It comes alongside:
- reductions in housing benefit, particularly for those seen to over-occupying their homes (the ‘bedroom tax’)
- large numbers of disabled people who will have reduced entitlement or no longer be eligible for support through Personal Independence Payment
- the news that Universal Credit will be less generous to those in work than previously announced
- the introduction of the benefits cap
- changes to tax credit eligibility
Ultimately if welfare changes drive people further into poverty, other problems such as health inequalities, homelessness, and family breakdown can occur because of financial pressures. Tackling those problems further downstream will only add to the overall public spending bill, not reduce it.
- CAS strongly urges all MPs to speak and vote against the Welfare Benefits Up-rating Bill.
- CAS recommends MPs call on the Secretary of State for Work and Pensions to publish an assessment of the cumulative impact this and other welfare reforms will have over the next five years on the poorest and most vulnerable groups in our society, both in and out of work.