Main jobless benefit sees biggest drop in value in fifty years – FE News


New analysis from the Joseph Rowntree Foundation (@jrf_uk) shows that tomorrow marks the biggest drop in the value of the basic unemployment benefit rate since 1972.

  • Tomorrow (Monday April 11) marks the biggest fall in the value of the base unemployment benefit rate in fifty years
  • A decade of cuts and freezes means that advantage has lost value in eight of the last ten years

The 3.1% increase that comes into effect on Monday is based on last September’s inflation, while inflation is expected to reach 7.7% this month. This means that households receiving benefits will suffer a reduction in real terms of their incomes which are already at historically low levels. A recent JRF analysis points out that this decision will push 600,000 people into poverty, around a quarter of whom are children.

Since 1972, ministers have decided how much to increase benefit levels each year based on an assessment of inflation. Since 1987, they have generally taken into account the rate of inflation for the previous September when deciding benefit levels each April. Although ministers take inflation into account when setting unemployment benefit levels, they can choose to use a rate above or below it.

The new analysis highlights that for eight out of ten benefit level changes between 2013 and 2022, the basic unemployment benefit rate has lost value, leaving it at its lowest level in 35 years in real terms. From 2013 to 2019, ministers chose to cut benefits in real terms by freezing their value or increasing them at a rate below inflation (while introducing further cuts).

Although there is historical precedent for benefit levels not keeping pace with actual inflation due to inflation volatility, this tends to cancel out over time. However, this year marks the first time that benefit levels will drop significantly in real terms due to this volatility following an extended period of impairment.

The next biggest annual drop in the value of benefits after 2022 was in 2010, but this followed a substantial increase the year before, meaning people receiving benefits did not have to wait a full year. so that the value of benefits catches up with prices, as they will now.

Chart: year-on-year change in the real value of unemployment benefits

Peter Matejic, deputy director of evidence and impact at JRF, said:

“With the cost of living set to increase further this year, it is difficult to understand the logic behind the choice not to act to protect the value of benefits, thus imposing the largest reduction in benefits of this type in fifty years. . The government has chosen to weaken the incomes of the poorest at the worst possible time.

“A decade of benefit cuts and freezes has left many in our society in increasingly desperate circumstances, struggling to afford food, energy and basic hygiene items. Without urgent action from the government, the stark reality is that the situation could get worse. The government must, at a minimum, ensure that the increase in benefits matches the real increase in the cost of living, as an immediate first step to protect people from hardship. Beyond that, the government still needs to strengthen our social security system, which was already woefully inadequate before the cost of basic necessities even started. to shoot.

The relevant inflation rate taken into account during the revaluation is currently the consumer price index (considered since 2011). Previously, the Rossi index was considered over the period 1997-2010, and before that, the retail price index was used.

Looking at previous periods:

  • Between 2013 and 2019, increases in benefit rates were limited to 1% (2013-2015) or frozen in monetary terms (2016-2019)
  • From 1984 to 2012, ministers almost always simply applied the historic rate of inflation, and while there were variations from year to year, these canceled out over time.
  • Inflation was very stable from 1998 to 2007, so the difference between historical inflation and April inflation was very small.
  • From 1984 to 1997, the differences were greater, but generally fade over time.
  • Between 1980 and 1983, Minsters chose to under-index in 1980 and 1981 and then to cancel it in 1982 and 1983.
  • Between 1972 and 1977 ministers often chose to overindex to inflation, but the rate of inflation on which they based their decisions was often lower than actual inflation at the time of the revaluation.

The government says the lag between deciding and implementing upgrade decisions is to allow systems to be updated, although the rapid increase in universal credit introduced at the start of the pandemic demonstrates that it is possible for the government to make changes quickly.

The Scottish government generally follows the same process of increasing benefits for which it is responsible as the UK government. But on March 16, 2022, the Scottish Government announced that it would increase many of the payments for which it is responsible by 6% instead of 3.1% in response to the rising cost of living.

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