We first took evidence on the cost of living crisis in February 2022, when inflation was forecast to peak at 7.25% in April 2022. Since then, we have seen the invasion of Ukraine compound the difficult economic picture and inflationary pressure seen internationally and domestically after the COVID-19 pandemic, and inflation now looks set to top 11% in October—the highest in 40 years. However, the context for the cost of living crisis and its impact on the poorest in our society reliant on social security support, particularly those of working age, must be recognised. According to the 2019 figures from the Resolution Foundation, social security spending will be around £34 billion lower in 2023–24 than it would have been if the 2010 social security system had remained in place. The UK’s social security support as a percentage of GDP is below EU-27 and OECD averages.
Since our inquiry opened, the Government has announced a collection of measures to try and help households with the rising cost of living, initially in February and March and supplemented in May with a more substantial package. These interventions have been broadly welcomed, especially for combining universal support with more targeted payments delivered through the benefits system, and including those on legacy benefits.
As well as recognition and gratitude for the scale of intervention, we have also heard some concerns. These often reflected more long standing problems with the UK’s social security system, which high inflation has laid bare. It also reflects the fact that the cost of living crisis is impacting heavily on those already most vulnerable, who rely on these safety nets. We urge the Government to simplify the support mechanisms to ensure households understand what support they are entitled to.
Much of the Government’s cost of living package is made up of one-off payments, with the Government clear that these are emergency measures and will not become ongoing or regular payments. We have heard that part of the reason these were chosen was administrative, and using them allowed those on legacy benefits, who did not receive the £20 uplift during the COVID-19 pandemic, to be included—we welcome this inclusion. But as we’ve heard before, regular, predictable income rather than lump sums is better for households trying to manage a budget, and we urge the Government to limit the use of one-off payments and prioritise other options.
We heard that a big cause of pressure on finances for benefits claimants was the failure of the uprating mechanism to keep pace with inflation—the April 2022 rise, when inflation was already 9%, was based on the CPI rate from September 2021, which was 3.1%, causing a real-terms fall in income. The reasons given to us by the Government for this seven-month gap are very similar to what we heard during the pandemic—legacy IT systems require manual inputting, meaning changes take months to implement. It is unfortunate that this wasn’t referred to in the Government’s response to calls for social security support to be uprated in line with inflation estimates when The Social Security Benefits Up-rating Order 2022 was debated in February this year. We repeat our previous recommendation that these issues should be addressed, and call on the Government to close the gap between the inflation reference point and uprating.
The cost of housing was mentioned regularly as a problem, especially since the level of Local Housing Allowance (LHA) has been frozen in cash-terms since 2020 when the Government made the welcome decision to reset its value to the 30th percentile. We recommend that this link should be maintained and LHA increased to support people on low incomes to access secure, affordable housing. We also recommend that the Government should consider the appropriateness of resorting to the use of discretionary funds such as the Household Support Fund. The Government must review whether the standard levels of benefits are adequate, including benefits for disabled people. Discretionary funding should not replace core funding. Where discretionary funding must be used, there must be clear reporting to ensure it is going where it is most needed.
The benefit cap has remained frozen at the same level since it was lowered in 2016, and has not been reviewed by the Secretary of State, despite the statutory requirement to do so every five years. We have heard evidence that echoes what our predecessor Committee heard in its 2019 inquiry: that it is causing real hardship and mainly affects larger families. When that Committee called on the Government in their report to increase the cap in line with inflation, the Government said it could not, as the Secretary of State was already required to review the cap, and “to do so would pre-empt the outcome of such a review.” Three years on, this review has still not taken place—we recommend the Government conducts it urgently, reflecting the spirit and intent of its statutory obligation, and uprates the cap accordingly.
The impact of deductions on claimants was detailed regularly in the submissions we received, with many calling for a pause or reduction as a measure to give people some extra breathing space during the cost of living crisis. We heard that repaying advances (particularly from the five-week wait) left many people struggling when they moved onto Universal Credit, and deductions for overpayments were often unclear and unexpected, some coming years after they were accrued. Repayments to the DWP are not subject to the same affordability assessments expected in consumer credit markets, and many families simply cannot afford these deductions from social security payments, which are already behind inflation. We recommend that, as during the pandemic, repayments should be paused and only restored gradually as the rate of inflation reduces, or when benefits have been uprated to reflect the current rate of inflation. If deductions aren’t paused, the Department must ensure that accessible and practical debt advice is available to those struggling. We also ask the Government to reconsider the Committee’s recommendations on deductions and debt in our 2020 ‘Universal Credit–the wait for a first payment’ report.
Many people who need Pension Credit don’t claim it. Increasingly it is an important way of ensuring older people have the support they need during this crisis. We welcome the recent steps the Government has taken to raise awareness and there are indications that this has resulted in an increase in claims. However, the Committee also heard that awareness raising can have limited impact unless it is targeted and sustained. We therefore recommend that the Department work with stakeholders to develop an evidence-based take-up strategy by the end of 2022. This should set out the actions that will be taken to deliver on this strategy over the next five years, with an annual update to the select committee on achievements to date and any amendments to the strategy.