The DWP is set to essentially cut £10bn from people’s benefits

A think tank has warned that the extent of the cost of living crisis is going to become so bad that it will hit people like a recession. Nearly every part of society is going to see a fall in their living standards. Most notably, the Department for Work and Pensions (DWP) will shave £10bn in real terms off people’s social security. Plus, child poverty rates for some groups could hit nearly 80%.

But the think tank has also issued an even starker warning. Because much of this analysis doesn’t factor in Russia’s invasion of Ukraine. And where it has forecast this in, the collapse in people’s incomes could be worse than the 2007/08 financial crash; a level not seen since the late 1970s.

Cost of living: bleak headlines

The Resolution Foundation has produced its fourth annual Living Standards Outlook report. It says the research looks at:

how household incomes and inequalities may change over the next five years

The report uses government, Bank of England, and Office for Budget Responsibility data. The Resolution Foundation then uses its own modelling to work out what will happen to living standards. Overall, It paints a grim picture. The report’s key takeaways are:

• “High inflation will squeeze incomes in 2022”.
• DWP social security rises “will not keep up with price rises”.
• “Tax rises and increasing housing costs” are going to hit people’s pockets.
• “Real incomes will take a huge hit in 2022-23, and potentially fall again in 2023-24”.
• “A drop in poverty in 2020-21 has probably already been undone”.

The full report makes for even worse reading – especially for people reliant on the DWP.

Everyone will be worse off

Overall, the report says everyone will be on average £1,000 worse off (excluding retired people) in 2022/23 than in 2021/22. It states that even without the impact of Russia’s invasion of Ukraine:

real incomes are currently projected to be lower in 2026-27 than in 2021-22, and the period from 2019-20 to 2024-25 is currently on track to be the worst parliament on record for income growth

The report says the collapse in living standards will be worse for people reliant on the DWP.

The poorest: hit the hardest

The report says that inflation means the DWP will effectively cut social security by £10bn in 2022/23. This will take its value to the lowest levels since the mid-1980s. But moreover, as a proportion of everyone else’s average weekly earning, DWP social security will be at its lowest on record:

Social security rates will recover in the years after this, but only to the levels the DWP set in April 2021. Plus as the report states, the benefit cap isn’t changing. This will mean many families won’t see the full impact of the social security rises after 2022/23 anyway. People affected by the Local Housing Allowance (LHA) and the two-child limit will see a similar impact.

Meanwhile, rent prices for social housing are set to increase proportionally more than rents for private sector accommodation in the next three financial years:

Back to the 1970s?

When the report does factor in Russia’s invasion of Ukraine, it says that in April 2022, inflation could hit 8.3%. If this happens, it would mean the collapse in real income would be the most drastic since the late 70s/early 1980s:

From 2020/21 to 2026/27, the poorest people are predicted to see repeated falls in their overall income – whereas the richest will eventually see theirs rise:

All this will lead, as the Resolution Foundation says, to poverty increasing again, and the:

prevalence of absolute child poverty is projected to be higher in 2026-27 than in 2019-20, with a large rise between 2020-21 and 2022-23 even before we consider the impact of the war in Ukraine

It will be worse for children in larger families with those in four-child and more families seeing their poverty rate hit nearly 80%:

An ongoing disaster

The poorest people in the UK are facing a disaster on top of the cost of living crisis that has already begun. Those reliant on the DWP are facing a collapse in income not seen in decades. It will come after years of cuts and freezes. And with the effect of the Russian invasion of Ukraine still not clear, the 2020s could be another lost decade for countless people. Moreover, as the Resolution Foundation’s analysis shows, the fact living standards can fall so low without us being technically in a recession shows that the way we measure the economy is weighted towards measuring the situation of the rich rather than society at large.

The poorest people cannot be punished while the government allows the richest to prosper. So, protest and community organising in the face of this crisis is more important than ever.

Featured image via StockSnap – Pixabay and UK government – Wikimedia