Is universal credit enough to live on? Here's why experts say the April increase is 'too little, too late'
Universal credit and other benefits are increasing by 10.1 per cent in April. But they will be lower than their pre-pandemic levels in real terms until 2025, according to research from the Institute for Fiscal Studies
Benefits recipients have only seen an increase of 3.1 per cent in their income since 2021. Image: Pexels
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The government promised to increase universal credit and other benefits in line with inflation in April, with Rishi Sunak claiming he has put “fairness and compassion” at the heart of decisions.
Benefits are increasing by 10.1 per cent in April, but campaigners warn it is “too little, too late” to help low-income families who cannot afford the basics needed to live.
Universal credit claimants will be £140 short of the money needed to afford the essentials each month even after benefits increase, according to new analysis from the Trussell Trust and Joseph Rowntree Foundation (JRF).
It comes after stark research from the Institute for Fiscal Studies (IFS) showed benefits have not kept up with soaring inflation – and April’s increase won’t make up for the shortfall.
Benefits claimants will be 6 per cent worse off in real terms than they were in 2019. That’s because rises are based on inflation figures from months before the increase actually comes in.
Sam Ray-Chaudhuri, a research economist at the IFS, said: “One might 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“But that would be to oversimplify considerably, because benefits are increased in line with out-of-date inflation measures.”
So, here’s everything you need to know about the benefits increase, how much claimants are left short every month, whether the cost of living payments make up for the shortfall, and what the government should be considering as it plans for the Spring Statement.
Why benefits aren’t actually keeping up with inflation
Benefits increases are based on out-of-date inflation statistics. When benefits increased in April 2022, they only increased by 3.1 per cent. This was based on the inflation rate for September 2021. But by the time April came around, the inflation rate was already at 9 per cent.
So since 2021, benefits recipients have only seen a 3.1 per cent increase in their income… that is miniscule when you consider the heights inflation has reached over the last year.
Benefits are next set to increase in April this year, by 10.1 per cent. This is based on the inflation rate for September 2022. Inflation reached a peak of more than 11 per cent in October.
Fortunately, inflation has eased and now stands at around 10.1 per cent – so by a stroke of chance, benefits are being increased by the current rate of inflation this year. But this will not make up for the loss of real-terms income faced by benefits recipients over the last year and a half.
Benefits will still be 6 per cent lower than their pre-pandemic levels in real terms after they rise in April. Just take a look at this graph:
In April (2023 Q2), the increase in benefits will merely take them back to around the level they were at a year earlier (2022 Q2). Even after the April 2024 increase, benefits will still be 2 per cent lower than their pre-pandemic levels in real terms. Astonishingly, benefits will only return to pre-pandemic levels in 2025 based on current inflation forecasts.
Will cost of living payments make up for the shortfall in benefits?
Energy grants and cost of living payments go some way to compensating for benefits not increasing in line with inflation, as illustrated by the dotted line on the graph above. But the IFS says there are clear problems with the bulk payments and not everyone will benefit from them in the same way.
Cost of living payments and energy rebates do not vary according to circumstances in the way that benefits do – so some people are left out of pocket while others are overcompensated.
Around 40 per cent of families with three or more children haven’t been compensated for the lack of uprating with inflation by these payments. These families have already been hit hard by benefit cuts including the two-child limit and the overall benefits cap in recent years.
Another bizarre outcome of the cost of living payments is that some people will be better off after a pay cut (or worse off after a pay rise).
Those with earnings just low enough to qualify for a small amount of universal credit get the full cost of living payment, while those with earnings very slightly higher – who are not entitled to any universal credit – get no cost of living payment.
The IFS estimates that there are around 825,000 people who could, in principle, increase their total income by reducing the amount they earn – so they could claim the cost of living payment along with universal credit.
The payments will cost the government around £2 billion more in 2023 to 2024 than it would have done to increase benefits in time with inflation.
How much do people need to live? And is universal credit covering that?
The Trussell Trust and JRF calculated that a single person needs £120 a week to afford the essentials (after housing costs), while a couple needs around £200.
This means universal credit claimants will be at least £140 short of what is needed to live each month even after benefits increase in April.
The charities’ experts found 90 per cent of low-income households on universal credit are currently going without essentials – sacrificing meals, not putting their heating on in freezing weather and cutting back on basic hygiene.
Even after the benefits are increased, a single person on universal credit will get £85 a week – leaving them £35 out of pocket. A couple will get £134 a week, so will be £66 short. A person under 25 currently will only get £67 a week, so they will be £53 short every week. This is just the money needed for essentials. There is no room left for luxuries like the occasional meal out or day trip.
What should the government do about universal credit and other benefits in the Spring Statement?
The Trussell Trust and JRF are calling for an “essentials guarantee” so that, at a minimum, universal credit is enough for people to afford the basics needed to live.
This guarantee would require the government to review the level each year. Universal credit would currently need to be at least £120 a week for a single adult and £200 for a couple, according to the analysis.
Really, the charities say universal credit should be set above this level. Otherwise any deduction (such as debt deductions or the benefit cap) would leave people unable to afford the essentials once again.
This policy would benefit 8.8 million low-income families, including 3.3 million families with children. Three in five of the families who would gain from it are currently in work, so it would help alleviate in-work poverty.
The charities estimate it would lift 1.8 million people out of poverty, saving them around £3,100 a year. This would include around 1.3 million people in a household with children, and around a million households where a person is disabled.
They are also urging the government to reduce the five-week wait for universal credit, lower housing costs and ensure that benefits are sufficient to help people pay for rent and high-quality, tailored support to help people get into work. These recommendations will reduce the “heavy lifting” that needs to be done by universal credit.
The essentials guarantee policy would cost the government an estimated £22 billion – but the charities urge ministers to consider the devastating impact people going without essentials has on the country’s economy. It would mean huge savings to public services.
The IFS is also calling for reforms to the welfare system, so that benefits are increased in line with inflation in real time.
“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,” Ray-Chaudhuri, said. “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.”
The Independent Food Aid Network has warned: “Far more needs to be done to ensure people have enough income through social security payments or work to get by. The uprating of benefit payments in April is likely to be too little, too late as the burden of debt pushes more and more households into poverty.”
Ahead of the Spring Budget, leading UK charities – including Save the Children, Shelter, Turn2Us and 38Degrees – have launched an open letter to the prime minister and chancellor calling for more support for vulnerable people.
“Tackling the causes of this crisis means creating a social security system that trusts, supports and empowers people to live with dignity and hope for the future,” Thomas Lawson, chief executive of Turn2Us, said. “Listening to people about the realities of their lives is the first step and we want to work with government to make that happen.”
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