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Poorer families in Britain will endure “recession level” falls in income over the next five years fuelled by the Labour government’s cuts to health-related benefits, according to analysis from the Resolution Foundation.
The think-tank said on Thursday that the cuts confirmed by Rachel Reeves’ Spring Statement on Wednesday amounted to £8.3bn a year taken from some of the most vulnerable people in the country, although this was offset by other welfare measures that brought the net saving to £4.8bn.
The chancellor had chosen to “concentrate the pain” of her fiscal consolidation on sick and disabled benefit claimants, while making relatively modest cuts to spending on public services, the Resolution Foundation said.
James Smith, the think-tank’s research director, said the policy decisions would contribute to “recession level” falls in living standards for households in the bottom half of the income distribution.
Their disposable income after housing costs would fall by an average of 3 per cent, or £500, over five years, the think-tank estimated. This marked “a really tough, recession-like outlook for living standards . . . similar to the 2000s or 1990s”, Smith said, calling it “a really bleak outlook”.
The overall outlook for living standards would also be affected by low real wage growth, higher rents, council tax and water bills, and an ongoing squeeze on other areas of welfare.
Labour MPs are highly anxious about the political fallout from the welfare cuts. On Thursday several expressed concern in the House of Commons about the reforms and the way ministers had communicated them. Some said their constituents were afraid.
Dame Meg Hillier, Labour chair of the Commons Treasury select committee, pointedly added that “every minister should be very careful about clumsy and inappropriate language”.
That was an apparent reference to Treasury chief secretary Darren Jones using an analogy to explain the welfare reforms by referring to his children taking a Saturday job on top of their pocket money. Jones later apologised.
The Resolution Foundation said the current parliament would be among the worst on record for living standards, with growth of 0.6 per cent in households’ real disposable incomes over the course of the parliament.
The 2020s as a whole — the first 4.5 years of which had a Conservative government — would be the weakest decade for living standards in 70 years of records, the think-tank said.
The decade has so far included the Covid-19 pandemic, a period of high inflation, and elevated energy costs.
“The 2020s are looking like a disaster of a decade, even relative to the two preceding it, in terms of living standards,” said Smith. “It is worse if you zero in on the bottom half.”
Reeves on Wednesday said she would save £4.8bn from the welfare budget by 2029-30 by cutting health-related benefits while increasing unemployment benefits, a figure scored by the Office for Budget Responsibility.
She said this was offset by another £1.4bn spent on schemes to get people back into work, meaning a net saving of £3.4bn.
But the Resolution Foundation said the cuts that some of the poorest families in the UK would experience were much larger than the net figure presented by the fiscal watchdog suggested.
Gross cuts to spending on disability and incapacity benefits total £8.3bn. The OBR has set against this a £1.9bn increase in spending on basic jobless benefits.
It has also scored a £1.6bn increase to welfare spending from Labour cancelling cuts to incapacity benefits planned by the Tories and included in previous fiscal forecasts but never implemented — totalling to £4.8bn in cuts.
This was the correct approach “in strict scorecard terms” but “as it represents the cancellation of a never-implemented cut, it will never be felt as a positive impact by households”, the Resolution Foundation said.
Reeves said on Wednesday that household income was set to grow in 2025 at twice the rate expected at the Autumn Budget, with people set to be “£500 a year better off under this government”.
She has also argued that estimates of the impact of the welfare cuts have not taken into account the benefits of the government’s back-to-work programmes.
Gauging the impact of the welfare changes could be difficult, however, given concerns raised on Thursday by the Institute for Fiscal Studies about the accuracy of official data used to measure poverty.
New figures showed real median household income after housing costs fell 2 per cent in 2023-24, with the largest decline of 18 per cent for the poorest tenth, and record numbers of children in poverty.
But the figures are based on an Office for National Statistics survey that — like many of the agency’s surveys — has suffered a sharp drop in its response rate to just 31 per cent.
Sam Ray-Chaudhuri, a research economist at IFS, said other data sources such as tax records did not corroborate the “concerning” trends outlined in the latest survey-based data published on Thursday.
“Policymakers are once again left in the dark as they try to navigate an increasingly unreliable statistical landscape, and this can only hinder effective policymaking,” he added.
Source: Economy - ft.com
