The UK’s income safety net is in tatters.
In principle, anyone without income can escape destitution by claiming universal credit or, if above pension age, pension credit. In reality, the value of working-age benefits has fallen to such a low level relative to need that they can fail to meet the most basic requirements of daily life.
Worse still, the majority of people without earnings will have to live on even less than these inadequate standard entitlements, for example because they exceed the benefit cap, because a family has more than two children or because the Department for Work and Pensions deducts money to repay loans, often taken out to stay afloat while waiting for universal credit to start.
The longstanding problem with the system is that it doesn’t systematically cater for need. There is no single measure of subsistence.
I recently compiled a report for the Financial Fairness Trust, in which I calculated the value of benefits relative to two key essentials of life: food and energy. My analysis shows a unemployed single adult now needs 20 per cent more than they receive in benefits to cover even their most basic costs.
Meeting food and energy costs
An unemployed single adult on universal credit currently gets £84.80 a week to live on (not including rent). Research on minimum household requirements shows, however, that in order to eat healthily in a warm home, a single person needs £104 for food and domestic energy alone.
Receiving 20 per cent less than this basic minimum means people have to cut back drastically not just on food and energy but also on meeting many other needs – including clothing, travel, basic toiletries and household goods.
On average, households in the UK allocate just 20 per cent of their income to food and energy in the home. And yet, even before the cuts the government started making to benefit levels from 2013, a single person needed to spend an unrealistic 73 per cent of their benefits to meet these food and energy costs.
My calculation shows that, one decade on, this figure has now risen to over 120 per cent. This makes a mockery of the idea that benefit levels are adequate for even the most frugal of lives.
Low for years and getting worse
After the second world war, the “national assistance” benefit was set to cover average working-class spending on some basic items. Since then, minimum support levels have mainly been uprated only by the general level of inflation, and not always in a way that reflects the actual increased costs of these items. This financial support seems increasingly ungenerous in a society whose living standards are unrecognisably higher than in the 1940s.
Then came the double whammy of the past ten years. First, in 2013, the government stopped automatically uprating benefits even with inflation, causing a real-terms decline in benefits already regarded as providing only for basic needs.
Second, despite a link with the consumer prices index being restored in 2020, the following year the price of basics started to shoot up much more sharply than these upratings. As Peter Matejic, chief analyst at the Joseph Rowntree Foundation charity, has pointed out, since April 2021, benefits have risen 13 per cent but the price of food by 30 per cent and home energy by over 60 per cent.
When such essentials of life are rising in price faster than other goods and services, true inflation is much higher than the official rate for the poorest groups. And the consequences are terrifying.
Fixing this broken benefits system after an election, with money so short, will not be easy. At the very least, there should be a commitment to start making improvements. Simply pegging benefits to prices is no longer enough. It entrenches these grossly inadequate benefit levels.
A good start would be a commitment to improving the value of the safety net as economic conditions permit. This would be a just alternative to putting all growth dividends into tax cuts.
This is in effect what the UK government did for pensioners in the mid-2000s, when it guaranteed that the state pension and Pension Credit would increase as earnings improved. The result is that a single pensioner is now guaranteed not £84.80 but £201.05 a week to live on, which is close to (although still slightly below) the minimum actually required to live a decent life, covering a range of material basics and a modest amount of spending on leisure.
Most of low-income Britain has taken a substantial hit in living standards from the rapid increase in the cost of essentials. Pensioners, though, are better placed to weather this storm because their incomes have grown in better times. The poorest working-age adults now desperately need a system that allows them to similarly benefit from future growth.
This article was originally published on The Conversation and is authored by Donald Hirsch