A sleight of hand
by Claudia Wood
Today, the government announced that Job Seekers’ Allowance (JSA) and Employment and Support Allowance (ESA) will be uprated by a 1 per cent rather than by the rate of inflation, as measured by the Consumer Price Index (CPI), for the next three years.
This is troubling for a number of reasons – the first being that while this actually only makes a small different next April (1.2 per cent less than expected as CPI currently is at 2.2 per cent) which shouldn’t forget that these small losses (of perhaps less than £1 per week) make a big difference to someone counting every penny at the checkout.
On the back of a raft of other benefit reductions and caps, it only adds to the larger cumulative effect being felt by those who are unemployed and/or disabled. Also, according to the Office of Budget Responsibility (OBR), CPI will increase in both 2013 and 2014, so the margin of loss between the inflation rate and the artificially capped 1 per cent will increase.
But the second point is one of principle. In the Emergency Budget, the government announced that benefits would be uprated by CPI, rather than the traditional (and more generous) Retail Price Index (RPI). However, when CPI peaked in September 2011 at 5.2 per cent, reports in the press suggested the Chancellor was considering on reneging on this policy, as it would cost the Treasury more than predicted. Some suggested Osborne was considering freezing benefits rises altogether, though a 2.5 per cent rise – in line with average earnings – was identified as the more likely alternative.
To back-track on a policy so soon after it has been implemented, just because the rule does not work in one’s favour, certainly smacked of moving the goal posts at the time – and it still does now. Once a new uprating rule has been implemented, with apparently robust justification - i.e. sometime along the lines of 'benefit should be linked to CPI because RPI includes housing costs, whereas benefits are not meant for housing costs – housing benefit covers that'.
It seems ludicrous to scrap it a year later for a random 1 per cent increase, with no economic reasoning whatsoever, other than the CPI link didn’t cut the benefits bill fast enough. One per cent seems arbitrary, selected only because it is round number, and it is far below the cost of living.
However, the Autumn Statement isn’t all bad news. While a small amount of pain is being widely spread, the very large cut concentrated on a small group (removing eligibility for housing benefit from those under 25) has been dropped. This would have been disastrous – not just for those losing eligibility, but for their families.
Recent Demos research showed just how serious a problem overcrowding was for families living below the poverty line, with multiple adults and children often living together to make their accommodation affordable – often resulting in poor mental health being reported. Housing benefit for these families was a lifeline, allowing older children to move out and relieve the (financial and emotional) burden on the remaining family.
In this case, the evidence regarding the disproportionate impact of this cut on youth unemployment and family life was taken on board – but it seems the case that other evidence regarding the cumulative impact of multiple benefits cuts on households already buffeted by redundancies, spiralling food and fuel prices and local service closures remains unheeded.