Benefit cuts are hitting working families

By Richard Exell, Senior Policy Officer at the TUC

Yesterday, benefits and tax credits went up. It’s the time for the annual cost of living uprating, and Child Benefit will go up for the first time since 2010. But the truth is that low-paid workers are losing out badly from cuts to social security benefits, and those with children are especially hard-hit.

As of yesterday, statutory maternity, paternity and adoption pay are paid at £138.18 a week – £7.87 a week less than if they had increased in line with Retail Price Index (RPI) inflation since 2011. Child Benefit for two children will be over £5 a week lower than it should have been, and a woman taking her full maternity leave will be more than £250 worse off.

Over the last three years, the papers have been full of the coalition government’s benefit cuts. There’s been the Bedroom Tax and the Benefit Cap, cuts in Housing Benefit and the abolition of Council Tax Benefit. But the biggest cut in cash terms comes from a change that’s hardly been reported: the rules on how benefits are raised to take account of inflation.

Until 2010, most non-means-tested benefits were uprated in line with the annual Retail Price Index (RPI) increase, measured the previous September. This increase was (as now) usually announced at the same time as the Budget and implemented in April.

Very soon after the coalition was formed, in its June 2010 Budget, the government announced that the RPI would no longer be used to determine the increase in benefits and state pensions; instead, the Consumer Price Index (CPI) would be used. It is really difficult to get people interested in this shift – I know, I’ve tried! – but the key fact about this change is that RPI is usually higher than CPI. If you look at how inflation has been measured by these indexes since the turn of the century, in an average year the RPI has said inflation was about 3.5 per cent; on average, the CPI has produced a figure of about 2.5 per cent.

This may not sound enormous, but remember school maths lessons about the effect of compound interest – if you’d had two benefits in 2000, worth the same amount, one uprated by RPI, the other by CPI, the first would be worth about ten per cent more today. The move to the CPI cut benefit spending by £1.2 billion in 2011/12 and the government estimated that this would rise to £5.8 billion by 2014/15.

But the government did not stop there. Child Benefit was singled out for special treatment and frozen in 2011/12, 2012/13 and 2013/14 (as well as being taxed for higher paid workers).

And, on top of that, the Welfare Benefits Uprating Act 2013 limits the uprating of non-disabled working age people’s benefits (including benefits for children) by one per cent in 2014-15 and 2015-16. They had already been uprated by just one per cent in 2013-14.

The government likes to claim that this policy is not just about cutting social security spending, it’s also supposed to be about fairness – making sure taxpayers are not subsidising people under retirement age who don’t want jobs. But these cuts – like the changes to uprating – don’t discriminate, they hit the benefits that low-paid workers need to get by. And this is especially true of family benefits:

Losses due to changes in benefit uprating

£ per week Rate after 2014 Budget Rate if policy had not been changed   Difference (weekly) Typical total difference
Child Benefit
  First child rate 20.50 23.74 3.24 168.48
  Rate for additional children 13.55 15.69 2.14 111.28
SAP 138.18 146.05 7.87 306.93
SMP 138.18 146.05 7.87 259.71
SPP 138.18 146.05 7.87 15.74

The typical total differences are calculated based on 52 weeks for Child Benefit, 33 weeks for Statutory Maternity Pay (SMP), 2 weeks for Statutory Paternity Pay (SPP), 39 weeks for Statutory Adoption Pay (SAP). The first 6 weeks of SMP is paid at 90 per cent of the woman’s normal earnings and so is not affected by the one per cent uprating; the remaining 33 weeks is paid at the lower of 90 per cent of normal earnings or £138.18.

Ordinary Statutory Paternity Pay is paid for 2 weeks, at the lower of 90 per cent of normal earnings or £138.18. Statutory Adoption Pay is paid for 39 weeks at the lower of 90 per cent of normal earnings or £138.18.

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