Boris Johnson’s blundering government is about to make the poor poorer—by accident

Poor families will be hit with soaring fuel prices and hardship in the coming months. But this passing pain could be used to create a fairer society

January 13, 2022
Poverty and old age used to be regarded as inseparable. Image: Granger Historical Picture Archive / Alamy Stock Photo
Poverty and old age used to be regarded as inseparable. Image: Granger Historical Picture Archive / Alamy Stock Photo

I don’t, as it happens, charge the current government with deliberately making the poor poorer in the way that, through deep and repeated cuts in benefits, the Cameron-Osborne regime indisputably did.  

A plea in mitigation could even be made in respect of the appalling recent decision to snatch away the £20 Universal Credit pandemic uplift. Namely, that this was only ever a row because of that emergency benefit help in the first place. The determination of Cameron, Osborne and Thatcher before them to tighten the squeeze in the very hardest of times suggests they might never have conceded such relief in the first place. 

But all this is of little comfort to those at the sharp end in Britain today when, in its singularly blundering manner, the Johnson government is about to make the poor poorer by accident.

As the Institute for Fiscal Studies reminded us this week, rocketing fuel bills will this spring push headline inflation to around 6 per cent, and the effective rate for the poorest—who have to spend more of their income on keeping warm—will be something closer to 7 per cent. 

But under a protocol to which little thought has been given during long years of stable and far lower inflation, benefits are adjusted using a rear-view mirror, in line with the price index from the previous September, when in this case it only rose by 3 per cent.  

The devasting effect of this gap is compounded because inflation was truly on the floor the September before, at just 0.5 per cent, the meagre figure which then fed through to benefits in April 2021. With headline inflation already over 5 per cent, the current reality is that poor families are trying to manage fast-rising bills with money that was last increased at only a tenth of the rate at which their prices are rising. 

The effect of soaring bills rising into sluggish benefits next year will, the IFS calculates, be equivalent to an income hit of £290 a year for the 10m families who rely on the money. That’s a serious squeeze at any time, but all the more so because it comes amid a continuing pandemic for which all the emergency economic support has now been withdrawn, and indeed after all the deep cuts to social security over the 2010s. 

Pertinently, the single element of the cutting then that did most damage to living standards was not any of the distinct individual cuts, such as the notorious “bedroom tax,” no matter how controversial, but rather George Osborne’s move to switch off the annual inflation adjustment and freeze the system for four straight years after the Conservatives snatched a narrow outright win at the 2015 election. 

Gradually, and little noticed, families sank below the waterline: these are the pre-pandemic years which saw, according to charity the Trussell Trust, a near-doubling of the need for food banks.    

So what to do about the latest squeeze? The immediate answer, as the IFS explains, is to recognise the unfolding cost of living crisis and short-circuit the ordinary indexing process in favour of a more generous settlement, one that at least vaguely corresponds to the bills already dropping on doormats. 

The Institute costs a 6 per cent benefit rise at £3bn, and point out that this increase need not be permanent because it could reasonably start being clawed back through a lower-than-standard rise a year later. The pressing problem here is that things are getting out of kilter, and so if we put that right then eventually one would expect much of the cost to come out in the wash. 

But there is another longer-term lesson for anyone committed to tackling poverty—and one which will only get more important if inflation becomes more of a fixture in a post-pandemic world of energy instability and seemingly-permanent expansionary monetary policies. Namely, to keep a hawk-like eye on the uprating (or “indexation”) regime. Over time, repeated annual adjustments exert huge power. 

Many years ago I did a comprehensive crunch of the contribution of tax and benefit changes to Britain’s famously rocketing inequality after 1979, and the stark conclusion was that everything depended on the way the system was “indexed” every year. Assess all the famous Thatcher and Lawson reforms against a baseline where the system was frozen in real terms, and they had precious little effect on the income gap; but compare them instead against a world in which the pre-1979 practice of uprating the system in line with rising national prosperity had continued, and fully half of the inequality explosion could be laid at their door. 

In the early 2000s, the elderly poor got the benefit of a new earnings link through Pension Credit and pensioner poverty fell. A few years later, annual increases in the basic state pension that goes to everyone—including the better off—were pegged to earnings through first a so-called “double-lock” and then a “triple-lock” formula. The details of the exact rules are less important than the cumulative ratchet effect which steadily increased pensions. As they rose, so too did the position of those receiving them relative to the rest of society. 

Remember that from time immemorial—through the age of the poor law, the Edwardian studies of Booth and Seebohm Rowntree and beyond—poverty and old age had been regarded as inseparable. But thanks in no small part to the quiet operation of individually-modest annual increases this is no longer the case: pensioners are today less likely to be poor than many others in society. 

Before Christmas, the Lords voted against the government bending the “triple lock” even in the economy’s weird post-Covid circumstances (where a big rebound from last year’s big dip on wages suddenly implied a whacking increase of 8 per cent). Although the move was brushed off in the Commons, the large Lords majority shows the political power such rules acquire once they are understood to be enshrined as guarantees. 

Campaigners against poverty are naturally drawn to big ideas such as universal basic income, creating a standing furlough scheme for every recession or a sweeping new social insurance settlement. These all have some merit, but the arithmetic always seems to stand in the way of making a giant leap. 

We might do more to address the tide of penury sweeping Britain by arguing for half-decent minimum benefit rates, and then locking in an indexation regime which will gradually but remorselessly bring them closer to true decency each year. 

The first challenge now is to help poorer citizens through a singularly nasty squeeze over the coming months. Looking beyond that, though, there is also the chance to ensure that an uprating process that threatens some nasty passing pain this year is reformed to become an agent of social progress.