Out of work benefit sees biggest drop in value in 50 years

New analysis by the Joseph Rowntree Foundation (JRF) finds that today marks the greatest fall in the value of the basic rate of out-of-work benefit since 1972.

The benefit will rise by 3.1% today, based off the inflation rate as of last September, but inflation is expected to hit 7.7% this month. This means households who receive benefits will experience a real terms cut to their incomes.

Recent JRF analysis highlights that this decision will pull 600,000 people into poverty, around a quarter of whom are children.

Peter Matejic, Deputy Director for Evidence & Impact at JRF said: ‘With living costs predicted to rise further this year, it is difficult to comprehend the logic behind a choice not to act to protect the value of benefits, thereby imposing the single biggest benefit cut of its kind in fifty years. The government has chosen to weaken the incomes of the poorest at the worst possible moment.

‘A decade of cuts and freezes to benefits have left many people in our society in increasingly desperate situations, struggling to afford food, energy and basic hygiene products. Without urgent action from the government, the stark reality is that the situation could get much worse. The government must, at a minimum, ensure that benefit rises match the real rise in living costs as an immediate first step to protect people from hardship. Beyond this, the government needs to further strengthen our social security system, which was already woefully inadequate even before the cost of essentials began to shoot up.’

Since 1972, ministers have gathered to discuss how much to increase benefit levels by each year, based on an assessment of inflation.

Since 1987, they have typically considered the rate of inflation the previous September to decide benefit levels each April.  Although, ministers may choose a higher or lower rate than this when setting unemployment benefit levels

The new research highlights that for eight of the ten benefit level changes between 2013 and 2022, the basic rate of unemployment benefits has lost value, leaving it at a 35-year-low in real-terms.

From 2013-19, ministers chose to reduce benefits in real-terms by freezing their value or increasing them by a lower rate than inflation.

While there is a historical precedent for benefit levels not keeping pace with real inflation due to its volatility, this tends to cancel out over time.

This year marks the first time that benefit levels will fall significantly because of this volatility following a sustained period of loss in value.

In 2010, benefit levels decreased in value, but this followed a substantial increase the previous year, meaning people on benefits were not waiting 12 months for benefit values to catch up with prices, as they will be now.    

Photo by Colin Watts