Long-term solutions to the cost of living crisis have to start with fixing a social security safety net damaged by ten years of benefit cuts, says Victoria Winckler.
People in Wales are already facing tough choices. In July the Bevan Foundation commissioned a survey from YouGov, the polling company, on how people are coping with the cost of living. With over 1,000 respondents, weighted to reflect the population of Wales, it is a unique insight into people’s financial circumstances. The results showed that more than one in eight Welsh households (13 per cent) either sometimes or often struggle to afford everyday items – things like food, gas and electricity and bus fares. A further 32 per cent said that they had enough for the basics but not much else.
This is already a very worrying position. That nearly half the Welsh population barely gets by not only matters for the households who are juggling every penny, it also has huge implications for the economy. Much of Wales’ business activity is driven by household expenditure on everything from food to fashion to weekends away. When people cut back on their spending local businesses suffer.
It is even more alarming as households go into the autumn and winter. Further price rises are in prospect. The Bank of England forecasts that the headline inflation rate will peak at 11 per cent in October and will remain at above 10 per cent ‘for a few months’ before gradually falling to around 2 per cent towards the end of 2024. Put another way, we will be living with rising prices for another two years and those elevated costs are here to stay for good.
Forecast inflation might not be quite so worrying if household incomes manage to keep pace with price rises. But they have not mirrored prices to date and are unlikely to do so in the future. Wages are forecast to rise by 6.2 per cent over the next few months, less than the current rate of inflation and well below the expected rate over the winter. The uprating of social security benefits from April 2023 is contested at the time of writing but could well be around 5.5 per cent rather than matching inflation as per the norm.
Rising prices and static incomes will undoubtedly squeeze households even further. For those who still have spare cash, there will undoubtedly be some belt tightening: fewer meals out maybe or turning down the thermostat one degree. For those barely getting by, their life will be even tougher: perhaps smaller portions of cheaper food and the heating off unless it is freezing. But it is the households who were already going without that we should all be really worried about. They face – and I do not use this term lightly – real destitution. By this I mean not having food, heating or warm clothing or toiletries not just once but week after week.
In recent unpublished research I have heard about the rising number of people in crisis. The number of people using food banks has soared, the number receiving emergency payments through the Discretionary Assistance Fund is at record levels while the number of people placed in temporary accommodation because they are homeless is twice that of August 2020. The human misery behind these statistics is terrible.
What is being done?
There is more being done to support people than governments are perhaps being given credit for. As well as capping energy prices through its Energy Price Guarantee, the UK Government’s Energy Bills Relief Scheme cuts household bills by £400 over six months from October this year. Even though energy prices have doubled in the last year (even with the Energy Price Guarantee), having an extra £15 a week on the meter is some help. Similarly the UK Government’s cost of living payments for some benefit recipients – a total of £650 paid in two installments in July and November 2022 – is worth £25 a week over the period.
The Welsh Government has delivered a number of schemes too. Earlier this year it paid £150 to every household living in a property in council tax bands A-D. Its own Winter Fuel Scheme that provided £200 to eligible low-income households last winter has now just reopened for further payments. In the summer it increased the value of its Pupil Development Grant–Access to £225 per eligible learner and extended eligibility to all year groups, and it is continuing to provide free school meals to eligible pupils during the holidays, often as cash payments of around £19.50 a week per child, to February 2023.
Ministers from both the UK Government and Welsh Government claim – with some justification – that they are already doing a great deal. The prime minister may well look at the £100 billion plus bill for the Energy Price Guarantee and Energy Bill Relief Scheme and wonder what more she has to do!
That these schemes are not enough, despite the massive expenditure, is because of the underlying problems in the support provided for low-income households. Very simply, the value of social security benefits for people of working age is too low. Benefits were barely adequate ten years ago, before the introduction of Universal Credit, and since then they have been gradually whittled away. The combined effects of the bedroom tax, the two-child limit, the benefit cap, the reduction in Local Housing Allowance to the 30th percentile of rents, the freeze in rates and many more changes were long predicted to make huge real-terms cuts in the value of social security. And so it has proved.
However, it has taken first Covid and now rocketing inflation to expose the impact of ten years of benefit cuts. Over and again people working on the front line are telling us that severe financial crisis is now a near-permanent fact of life for low-income households, not a one-off emergency because of an unforeseen event such as fire, flood or theft.
Against the backcloth of an inadequate social security system, it is hardly surprising that a patchwork of different one-off grants and schemes does not have the impact – or warm reception – that politicians might hope for. It is difficult for professionals who work with these schemes to keep track of them all, let alone the stressed, time- AND cash-poor applicant who has to navigate them.
Add to this, most people on low incomes manage their budgets down the last pound. While I am sure that one-off payments are incredibly helpful, whether for supporting day to day living costs, replacing worn-out items or clearing arrears, they don’t help in the long term. The Energy Bills Relief Scheme might well mean the heating is on for an extra couple of hours this winter, but what about next May or next October?
The debate about social security is almost entirely focused on the small stuff – the £20 uplift or the uprating mechanism for example. There simply isn’t a challenge to the long-term erosion in the value, the punitive caps or the built-in deductions that have combined to guarantee near destitution for many benefit recipients. With high prices here to stay, this is a conversation that urgently needs to take place.
Victoria Winckler is director of the Bevan Foundation