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Austerity is not over for the UK’s hungry families

19th Mar 2014

The UK's Chancellor of the Exchequer and his distinctive red budget box
George Osborne, the UK Chancellor of the Exchequer, today set out his spending plans for the next year. But although the rhetoric is all about resilience, the poorest and most vulnerable in the UK have once again been left behind.

Listen to today's Budget speech and you could be fooled into thinking it was officially the end of the dark days of austerity and onwards to a reborn, resilient UK, where living standards are rising and we all have more shiny 12-sided pound coins in our pockets. Earlier this week, we exposed the fact that the five richest families in the UK own as much wealth as the poorest 12.6 million.  

IFS' analysis of tax and benefit changes since 2010

And the sad truth is austerity has systematically undermined the resilience of families and communities across the UK. Whilst this is the first coalition Budget delivered at a time of meaningful growth (over 1%), many people are less able to make ends meet than they were four years ago. Most households have seen a fall in income over that time: the result of government tax and benefit changes.

Here's the IFS' analysis of the changes from 2010 - 2014 (the key bit is figure 7.5 shown on the right).

Wages aren't making up the shortfall

The soaring cost of living means that, for the poorest, any fall in income is felt even more sharply. The Chancellor's talk of getting people into work to help them out of poverty couldn't be further from the truth.

Today's flagship policy of raising the income tax allowance to £10,500 changes nothing for those earning under £10,000 (the threshold as of April 1, 2014). But it does help everyone earning up to £100,000 see an increase in their income. 

Similarly, the additional support for childcare costs won't help the poorest as much as it helps the richest.

In 2012, poverty in real terms saw the biggest year-on-year increase in a decade and working poverty overtook out-of-work poverty. Since 2009, the number of workers earning below a Living Wage has increased by 1.5 million to 4.8 million in 2012.

None of this is any surprise when Oxfam's partners speak of the growing pressure at food banks to meet the demand.

What will the cap on welfare mean?

Whilst the Chancellor's continued commitment to 0.7% for international aid should be rightly praised, his commitment to helping the poorest in the UK is questionable. The only announcement impacting the incomes of the poorest was the confirmation of the welfare cap - announced in the Autumn Statement - hardly something to be applauded.

The welfare cap stops the total pot for welfare spending from rising faster than inflation - currently 1.9% (CPI). The problem is the cost of childcare, food, housing and energy have all risen faster than inflation in recent years.

The rising cost of living

Childcare costs rose risen 6% since last year (some claim an increase of as much as 19pc), food price inflation averaged 3.8% last year, energy bills increased 3.6% as compared to Jan 2014, and rents in London increased 4.8%. Whilst a huge number of factors can increase or decrease inflation the outlook is not good - energy bills, for instance, expected to outstrip inflation for the next 17 years.

If welfare support doesn't reflect increases in the cost of living, then people on low incomes will be faced with two equally implausible options: make extra savings or earn more money. Asking them to make extra savings ignores the fact that food banks use has accelerated as people prioritise the rent - if there was any money for savings it would be spent on food and warmth. Increasing the minimum wage will also have little effect for the lowest paid as their benefits will be withdrawn at an effective tax rate of 65p.

What can be done?

First, the government could increase the earnings disregard (the point at which benefits start being withdrawn) by £200 a year - the average increase felt to most pockets as a result of increasing the income tax allowance. That would significantly help the poorest families to meet the rising cost of living by keeping more of the money they earn (at a cost of about £436 million).

Second, an alternative rate by which the welfare cap should be increased to allow a better response to the spikes in energy prices, rents and childcare, where the government is otherwise unwilling to intervene. A rate that averaged the increases to the basic cost of living would be fairer to those on low incomes. The JRF's stellar work over the last few years on a Minimum Income Standard would provide some degree of guidance.

Austerity isn't over. Eliminating the deficit was targeted for 2015 - now it's targeted for 2018-19. Moreover the impact of austerity will be felt more keenly after this year, when a significant amount of cuts will have taken effect

People are already going hungry. Unless we find a way to keep these costs down the poorest will be surviving on even less.