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The impact of the 1% benefit cap on Wales

January 8th 2013

money

The Welfare Uprating Bill, due to be considered in the Commons later today, will hit Wales hard. By proposing to limit increases to almost all the main benefits by just 1% a year, the Bill reduces the real value of already-low benefits further. Argued to prevent benefits outstripping earnings, there is little evidence to support the claims – the House of Commons’ own research paper pours bucket-loads of scepticism onto the claims.  

Social security benefits, be they Jobseekers’ Allowance, Employment & Support Allowance, Statutory Maternity Pay and more are all there to meet people’s basic needs if they fall on hard times.  There are no official studies, but it is widely accepted that current benefit levels fall far short of what is needed for a minimum acceptable standard of living – whatever is claimed about benefits being a ‘life-style choice’.  Nobody lives a life of luxury on Jobseekers’ Allowance of £71 a week.   The decision to impose a 1% increase on benefits for the next three years is entirely arbitrary – it has no link with the needs of people claiming benefits, nor does it have any link with inflation or earnings. Indeed, if inflation or earnings turn out to increase at less than 1% a year, benefits will in fact increase at a higher rate.

The disproportionate increase in benefits that has so exercised the UK Government is also a product of the recession.  In the last four years or so, wages have taken a big hit as employers have reined in costs, and so it is hardly surprising that benefits have increased by a higher percentage.  But look at the long-term trend, and it is clear that the gap between benefits for working age adults and wages has increased considerably. In fact the New Policy Institute calculate that benefits for working-age adults have the same cash value in 2011 as in the 1970s. 

Comparing the percentage changes in benefits and wages is also highly misleading. A 1% increase in benefits is tiny – for someone on the current JSA rate for over 25 year olds it is worth a princely 71p a week. Compare that with the value of a 1% rise for someone on median earnings in Wales – £4.50 a week, and even for the least well off quarter of earners, a 1% rise is worth £3.37 pw.   Even if benefits rose 2%, it would hardly erode work incentives.

Last, and by no means least, the limit on benefit rises will strip hundreds of millions of pounds out of the Welsh economy. If the Consumer Price Index increases by 2.5% a year over the next 3 years while benefits go up by 1%, £106 million less will be paid to claimants of Jobseekers Allowance, Incapacity Benefit, Income Support, Housing Benefit and Statutory Maternity Pay and Allowance. Even more will be lost because of lower than inflation payments on Child Benefits and Tax Credits whose value to the Welsh economy is not clear. 

This could prove to be a far more dramatic undermining of the economy and prosperity in Wales than the recession itself – the difference is that MPs actually have a choice about whether they vote for this added squeeze or not.  

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