Falling inflation is good news for pay but confirms £200 hit for low-income families with kids

Published on Jobs, Skills and Pay, Public Finances and the Economy, Tax and Welfare

Press release from the Resolution Foundation

Wednesday 17 October 2018 – For immediate release

Inflation falling to 2.4 per cent in September brings mixed news for working families – stronger growth in their pay packets but a confirmation that the fourth year of the benefit freeze will bring significant living standards reductions for lower-income families, the Resolution Foundation said today (Wednesday) in response to the latest ONS inflation figures.

The latest inflation figures show a significant fall, with CPI inflation falling from 2.7 per cent. This reinforces positive pay news yesterday that nominal pay is rising at the fastest rate (3.1 per cent) since the financial crisis. However the Foundation notes that inflation remains above the Bank of England’s 2 per cent target and that the prices firms are paying has picked up on the back of a higher oil price.

Today’s inflation figures, which would normally be used to uprate benefits next April, have also laid bare the scale of the cash freeze on working age benefits facing around 11 million families.

New analysis by the Resolution Foundation finds that the four-year freeze in working age benefits – including Child Benefit, Tax Credits, Universal Credit, JSA, ESA and Housing Benefit – will save £4.4bn annually by next year, with £1.5bn of those savings coming from next year’s freeze alone.

The overall impact of the benefit freeze will leave a couple with kids in the bottom half of the income distribution £580 poorer next year, with next year’s freeze alone leaving them £200 worse off. The benefit freeze started in April 2016, and its fourth and final year will start next April.

The Foundation says that the Chancellor has an opportunity to show that he is ending austerity for low-income families in his Budget later this month by cancelling the final year of the benefit freeze.

 

Adam Corlett, Senior Economic Analyst at the Resolution Foundation, said:

“While falling inflation is good news for real pay growth, today’s figures also confirm a blow to low-income families’ living standards by setting out the scale of squeeze on their benefits.

“Low-income families with children are set to lose £200 a year from next year’s benefit freeze, while the overall impact of the policy is set to leave them almost £600 worse off.

“The Chancellor should prevent this hit to low-income families by cancelling the benefit freeze in his Budget later this month.”

 

Notes to Editors

  • A full Resolution Foundation analysis of the impact of the working-age benefit freeze is available here.
  • For more information contact Rob Holdsworth on 020 3372 2959 or 07921 236 972.