This September 2022 briefing presents original analysis from the Legatum Institute using the Social Metrics Commission’s approach to poverty measurement.
Our previous briefings have shown that the current way in which benefits are uprated can lead to significant impacts on poverty. This is because benefits are typically uprated in April each year, based on the previous year’s September CPI inflation rate. In April 2022, this means that benefits were uprated by 3.1% (the previous September’s rate of CPI inflation). This had the impact of increasing poverty, as inflation rates in April 2022 had increased significantly (to 9.0%) since the previous September. Some of the impact of this was offset by one-off cost-of-living payments provided to claimants of means-tested benefits, disability benefits, and to recipients of Winter Fuel Payment.
At the time, HM Treasury also committed to uprating benefits in April 2023 by the rate of inflation in September 2022. This would have ensured that benefits caught up with the value that they previously held before inflation began to rise rapidly.
Since then, the Government has suggested that they may not uprate benefits in line with inflation.
This briefing considers the poverty impact of selected options for the uprating of benefits in April 2023, for the 2023-24 financial year.
A. Uprate benefits by the rate of inflation in September 2022. It is assumed that this is equal to the rate of inflation in August 2022, at 9.9%.iii
B. Uprate benefits by the rate of annual earnings growth in July 2022. This would require a 5.7% uprating.iv
C. Freeze benefits at their 2022-23 levels.
The poverty implication of options B and C are estimated relative to scenario A, in which benefits are uprated in line with inflation.
This briefing finds that:
- Uprating benefits by earnings (5.7%) instead of inflation (9.9%) will result in an additional 450,000 people in poverty in 2023-24.
- Freezing benefits would result in 1,000,000 people more in poverty in 2023-24.