NIESR thinktank suggests that urgent £25-a-week UC uplift and a one-off payment of £250 to shelter the poorest from inflation is needed.
At least 250,000 will “slide into destitution” next year, taking the total number of people living in abject poverty to roughly 1.2m. That scenario is bound to happen unless the government acts to assist the poorest families hit by energy price shock, the National Institute for Economic & Social Research (NIESR) stated.
Over 1.5m households will see the surge in energy and food bills overshadow their disposable income, making them depend on extra borrowing or savings to make up for the insufficiency, said the think tank. NIESR condemned welfare spending cuts since the Brexit vote in 2016 for abandoning millions of families in a vulnerable financial position.
To prevent a rise in poverty levels, the government needs to raise universal credit payments by £25 each week immediately while giving the 11.3m lowest-income households a one-off cash payment of £250, NIESR said.
The critical situation encountered by many low-income families was likely to go on after the government committed only limited funds to its skills budget and levelling up agenda in the budget in March.
Inflation, which NIESR expects to average 7.8% this year after reaching its highest point at 8.5% in the autumn – lower than the Bank of England’s 10% estimate – will drop in 2023. However, the government’s dependence on loans to help poor families, which must be paid off over subsequent years, will mean poverty levels stay elevated.
NIESR said that the main grant for fuel – a 5p cut in fuel duty – was badly aimed at and would mainly help better-off drivers with the biggest, fuel-hungry vehicles.
NIESR boss Jagjit Chadha said the government’s policies could be directly condemned for harming the real incomes of UK households, explaining its outlook for the economy over the next three years – with rising unemployment and lower growth prompting a recession in the second half of 2022.
He stated:
“It is quite clear that fiscal policy could be used to smooth the income shock. Time and again we have been told that there is little room for maneuver when the weather turns unpleasant. When the government had a £20bn borrowing capacity under its own fiscal rules that could be used to support poorer families”.
Chadha is a prevailing critic of the government’s austerity measures. He said successive governments since 2008 should have been more ambitious instead of handing down much of the job of propelling economic growth to the Bank of England.
Looking forward, he said the government was misguided to accelerate balancing the books when it should be investing to cushion the poorest in the society and develop the regions.
A rise in universal credit uplift of £25 a week between May and October 2022 would help about 5.6m households and cost around £1.35bn. A one-off cash payment of £250 per household for 2022-23 would cost £2.85bn.
Professor Adrian Pabst, NIESR’s deputy director for public policy, said:
“Prices will push up bills, drag down demand and increase income inequalities. The big squeeze on budgets will hit the lower-income households hardest who live in some of the most economically and socially deprived parts of the country.”
“To stop an additional 250,000 households from sliding into debt and destitution, the chancellor should instate a £25 per week universal credit uplift for at least 6 months.”
