The Resolution Foundation said increasing benefits by the expected inflation rate of 8.1% — rather than 3.1% — would make a far bigger difference than canceling the Social Security increase in Rishi Sunak’s Spring 2022 statement
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The increase in benefits would give low- and middle-income families almost four times more support than cutting Social Security, experts reveal today.
Chancellor Rishi Sunak faces mounting calls to ease the cost-of-living crisis for millions of households as he unveils his spring declaration mini-budget on Wednesday.
An analysis by the Resolution Foundation compares the impact of three possible policies, each costing around £9 billion.
These include increasing all working-age and pensioner benefits by 8.1% instead of the planned 3.1%; offset the threat of increases in social security contributions for low earners by raising the threshold above which they are paid to £12,500; and cancel the 1.25% increase altogether.
The think tank says raising benefits “delivers the largest cash gains of the three policy options in the bottom half of the income distribution.”
The Foundation’s chief economist, Adam Corlett, said: “Rapidly rising inflation is on course to create the worst income squeeze for families in the UK since the 1970s.
“The chancellor will have to act in his spring statement to soften the blow.
“Low-middle income households will be hit hardest by the cost of living tightening, particularly as the energy price cap rises, and should therefore be given priority support.
“Increasing benefits by another five percentage points would do four times as much for these families as canceling the increase in social security and should be the Chancellor’s top political priority.”
Shadow Chancellor Rachel Reeves yesterday urged that benefits should rise around inflation – which is now 5.5% and could rise to over 8%.
That could be double April’s 3.1% gain, which will be worth just £10.07 a month for Universal Credit’s standard allowance.
She told the Observer: “The chancellor should look at how she can raise social benefits fairly. They’re supposed to go up with inflation, and they’re not doing that at the moment.”
The foundation says the Government should prioritize support for low- and middle-income households, who will be hit hardest by soaring dual-fuel bills when the energy price cap rises by £693 next month.
“The poorest tenth of households currently spend about three times as much of their total budget on energy bills as the richest tenth of households, while the forthcoming increase in the price cap will double the number of fuel-stressed families – at least 1%. of their entire family budget for energy bills – for five million families this spring,” says the think tank.
“By canceling the surge in NICs – as many backbench Conservative MPs and the Labor Party are proposing – half of the profits would go to the richest fifth of households.
“Only £1 for every £6 would go to the bottom half of the distribution, which on average would gain just £150 compared to £530 from the increase in benefits.”
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