The government has introduced a series of ‘cost of living
payments’. The largest of these are five instalments totalling
£1,550 for households on means-tested benefits, with each
instalment going to at least 7 million households. There are
additional payments to people on disability benefits and
pensioners. The total cost of these is nearly £19 billion over
two years.
New IFS research, funded by the Joseph Rowntree Foundation, finds
that whilst the payments facilitated higher spending for
low-income households, they were not targeted at those most in
need – and their occasional, lump-sum nature created additional
difficulties.
This research confirms that it would have been preferable
simply to increase benefit levels – for example, by
uprating them to ensure that they actually maintained their real
value.
This sticking-plaster solution has proved expensive and
ineffective by comparison, offering much bigger
proportionate increases to some – notably those without children
and those in work – than to others.
The research focuses on the first instalment of these payments in
July 2022, and finds that:
- The payment of £326 in July 2022 substantially boosted
spending. In the month after receiving the payment, total
spending among recipient households was, on average, £130 higher
than in the month before.
- The jump in spending immediately after receiving the payment
suggests that many households were significantly
constraining their spending in the weeks leading up to the
payment. Many may have been experiencing hardship whilst
waiting for the payment to come through.
-
Spending fell sharply after the immediate
spike. Large one-off payments, rather than smaller
regular payments, are less useful for long-term budgeting.
- Spending increased on items like groceries (£20 higher in the
month after payment) and items like entertainment (including
eating out, TV and streaming services, and other leisure
activities; £35 higher), suggesting that levels of need
varied significantly among households receiving the
payment. This is not surprising given that the same
payment was made to all 7 million households receiving
means-tested benefits, regardless of their other circumstances,
and therefore was not targeted at those in the greatest need.
The report, which examines wider trends in poverty since the
pandemic, also highlights the importance of benefit levels and
design to poverty rates more generally. Analysis pre-released to
the Guardian earlier in the week shows that:
- In the first year of the pandemic, despite wider turmoil,
absolute poverty fell from 17.9% to 16.8% due to rising benefit
receipt, in particular from the temporary £20 a week uplift to
universal credit (UC).
-
In 2021–22, absolute poverty was still 0.7 percentage
points (479,000 people) below its pre-pandemic level,
to a significant extent because of the £20 uplift (which was in
place for the first six months of 2021–22) and subsequent
changes to the UC work allowances and taper rate (which reduced
the speed at which UC is withdrawn as earnings rise).
-
The changes to the UC work allowances and taper rate
have a much smaller effect on poverty than the £20
uplift they replaced. Per pound of government
spending, the uplift had a 40% larger impact on reducing
poverty. This is because the work allowance and taper changes
mainly benefit somewhat higher-earning households a little
further up the income distribution, and do not benefit
out-of-work households at all, who tend to be the poorest.
Sam Ray-Chaudhuri, a Research Economist at IFS and an
author of the report, said:
‘The cost of living payments supported low-income households’
spending in the face of rising prices, and no doubt have helped
alleviate significant deprivation. But, by giving the same amount
to all households on benefits regardless of their circumstances,
the payments were not targeted at those in the greatest need,
limiting their effectiveness in poverty reduction. The government
spent £8.3 billion on lump-sum payments in 2022–23 and will spend
an estimated £10.5 billion in 2023–24 – a better-targeted policy
could have offered higher amounts of support to those in greatest
need, with no additional cost to the taxpayer.’
JRF Chief Analyst Peter Matejic said:
‘This research shows that policymakers ignored the obvious answer
to the cost-of-living crisis facing low-income households of
increasing benefit levels in favour of a solution that didn’t
focus on helping the families left agonising about how they would
afford to feed and clothe their children.
‘We know that around nine in ten low-income households on
universal credit are going without the essentials like food, soap
and clothing. That is because the gap between what they receive
in UC and the price of everyday goods is at least £35 a week,
even before any deductions are taken at unaffordable rates. Even
with one-off emergency payments, no amount of budgeting covers
this gap over a sustained period.
‘The sure-fire way to make sure the people most at risk of
poverty aren’t left in jeopardy in the wake of economic shocks is
to adopt the Essentials Guarantee which would mean the basic rate
of universal credit at least covers the cost of life’s
essentials, with support never being pulled below that level.’
ENDS
Notes to Editor
'Poverty' is a report chapter by Sam Ray-Chaudhuri, Tom
Waters and Xiaowei Xu embargoed to 0001 Thursday 13th July.
