Chancellor Philip Hammond is facing calls from within his own party to review the four-year freeze on working-age benefits to alleviate the pressures on those with the lowest incomes in Britain.
It comes after The Independent revealed earlier this month the Government had grossly underestimated the severity of its four-year freeze on working-age benefits, with the cap now set to hit claimants by almost 50 per cent more than official estimates.
An analysis by the House of Commons Library showed that, due to rising inflation, the measure introduced last year is now expected to reduce support for those on low incomes by £13bn over the next four years, compared with the Government’s own forecast of £9bn.
Heidi Allen, a Conservative MP on the Work and Pensions Select Committee, told The Independent the Chancellor needed to look again at the policy.
“I see it principally because of Brexit that economically things were going to get turbulent, and that’s why we pushed so hard to get some money pumped back into universal credit, which as you’ll know we got a modest improvement on the taper rate – a couple of per cent,” she said.
“I remember saying it at the time: 'We’re not through this yet'. If inflation picks up, people are going to be in trouble and that’s where we are."
Asked whether she thought Mr Hammond should review the policy, Ms Allen replied: "I do."
Ms Allen said the Chancellor has to look seriously at injecting money back either into the work allowances or the taper rates in universal credit in line with where inflation is heading. One possible solution would be redirecting the finances put into the raising of the tax threshold, she added.
“Otherwise while the raising of the tax threshold was great, it’s a bit of a headline because it affects absolutely everybody," she said.
“It’s a pretty crude and blunt instrument in terms of having a positive impact on incomes because it doesn’t focus in on those who really need it.
“It just makes no sense. In terms of what went into manifesto commitments I suspect it was done without a thought of where the Brexit vote might go and where inflation might go. We are just in a different place now. It just doesn’t work any more.”
One former minister said the new forecast was “concerning” and risked adversely affecting the “just about managing” – the people whose interests Theresa May has claimed to champion since becoming Prime Minister. The former minister said people behind the scenes would be asking the Treasury and the DWP to “look at the policy again” and “keep it under review”.
The comments from Tory MPs also echo those of former Conservative leader Iain Duncan Smith, who resigned as the party’s Work and Pensions Secretary shortly before the freeze came in. He said in November last year that the Treasury should review the policy because it would likely be hit by harsher than expected inflation.
“When the original benefit freeze was set it was set against an estimate of a much lower rise in inflation,” he told an audience in Westminster last year.
“Therefore I’m sure the Treasury will want to look to keep that under review because the purpose was not to have such a dramatic effect on incomes against a forecast of rising inflation.”
Labour has also called on the Government to urgently review the freeze, saying it risks pushing vulnerable claimants into poverty.
The policy, announced in George Osborne’s final summer Budget speech, came into effect last April and affects around 11 million families across Britain.
The Children’s Society published research in 2016 claiming that more than seven million children living in low-income households were expected to be affected by the freeze.
The independent Institute for Fiscal Studies (IFS), says that annual uprating of benefits and tax credits each April would, in normal circumstances, offset some of the loses to income from a weak pound and rising prices. But, due to the four-year freeze, the IFS adds that unless the policy changes higher inflation will reduce their real incomes.
The four-year freeze includes the main rates of Jobseeker’s Allowance, Income Support, Employment Support Allowance and Housing Benefit, as well as Child Benefit and other working tax credits.
Debbie Abrahams, the shadow Work and Pensions Secretary, said the four-year freeze in social security payments, coupled with the increase in inflation, will “feel like a cut to families who are already struggling”.
“Millions of people who rely on tax credits, universal credit, employment and support allowance and other forms of social security will see their living standards fall even further. Many more children and disabled people will face poverty,” she added.
Ms Abrahams also said Jeremy Corbyn’s party would reverse the cuts to in-work support that “will see 2.5 million families worse off by an average of £2,100 a year”.
A Government spokesperson said: “By cutting taxes for millions of people, giving the lowest earners a pay rise with the National Living Wage, doubling free childcare for nearly 400,000 parents and freezing fuel duty, we are helping people who need it most.”Reuse content