Rishi Sunak risks plunging more than 3 million people into poverty if he goes ahead with a planned cut in welfare payments next spring, one of Britain’s leading leftwing thinktanks has warned.
A new study by the Fabian Society found that returning benefits to their pre-pandemic levels after a year-long boost would leave an additional 1.1 million people below the poverty line even on the most optimistic assumptions for the economy.
It added, however, that if the government removed the £20 a week supplement to universal credit (UC) against a backdrop of mass unemployment, the impact would be three times as severe, with 3.2 million people living in poverty.
The chancellor announced at the start of the Covid-19 crisis that he would spend £6bn on a one-year increase in UC, but did not say in last week’s spending statement whether he intended to continue with the extra payment after March.
Although the Treasury says a decision on UC does not need to be made immediately, there has been growing pressure on Sunak to make the temporary increase permanent.
The new Fabian report says that in the event of its mass unemployment scenario coming about, more than one in five people (22%) would be living in poverty, while the number of children living in poverty would rise by 850,000.
Almost one in three children (29%) would be living in households with an income of less than 60% of the median – a return to the peak level reached in the early 1990s.
Andrew Harrop, general secretary of the Fabian Society, said: “If ministers reverse the temporary benefit rises that sustained millions of low income households this year the consequences will be enormous for families, reducing spending power and driving people into poverty.
“But it could get much worse. When furlough and other support measures come to an end in the spring, unemployment is expected to grow and many more families will turn to benefits.
“After so many redundancies on the high street this year, there is a chance of unemployment rising to levels last seen in the 1980s and 1990s. Alongside the planned benefit cuts this will push an extra 3 million people into poverty. The government must act now and put the 2020 benefit uplift on to a permanent footing.”
The Fabian report said it had modelled the likely impact on poverty of the scenarios for unemployment contained in last week’s analysis of the prospects for the economy from the Office for Budget Responsibility. The OBR’s central forecast is for the jobless rate to peak at 7.5% next summer, but it also said the economy might perform better or worse. If things went better than expected, unemployment would peak at 5.1%; if they went less well it would rise to 11%.
The Fabian study said the OBR’s central forecast assumed unemployment would peak after 1.5 years – much more quickly than in past recessions. Given the economy was on course to suffer its biggest collapse in output in three centuries, it added that the chances of a less benign outcome “must be high”.