Keeping Pace

Would £10 solve your financial challenge this Christmas? Would an extra 25p a week take the pressure off your cost of living? Do you think you could find somewhere to rent if rents keep going up but your rent allowance has been frozen for three years?

Most social security benefits are uprated fairly regularly. But some aren’t. Some rates of benefit have been frozen since they were introduced in the 1970s. Some are occasionally uprated, but often frozen.

For the last six months we in the Social Security Advisory Committee have been looking at the benefit rates, thresholds and caps which don’t form part of the regular social security uprating process We wanted to find out how many there are, and what effects the freezes are having, and recommend to the Government a sensible, less arbitrary, way of approaching them.

In some ways, this is a personal journey. I’m coming to the end of my ten years on the Committee. But much of my career before then had been working as a civil servant on social security policy and operational design in the Department for Work and Pensions and its predecessors. I was a very junior member of the team which introduced Income Support and Housing Benefit with an earnings disregard (the amount you could earn each week without losing benefit) at £5 for a single person. In the 1990s I led the team which designed Jobseeker’s Allowance - which inherited the £5 disregard from Income Support. Ten years later I helped implement Pension Credit which incorporated an earnings disregard of - wait for it - £5. I’ve now been retired for 13 years and the single person’s disregard in Housing Benefit,[1] Jobseeker’s Allowance and Pension Credit is still £5. It had a purpose when it was introduced in the 1980s – to allow people to earn a modest amount of money without it affecting their benefit or having to report it. Now that it’s worth 24 minutes’ work at the National Living Wage it is very hard to see what real purpose it has today.

This is only one example. Our overall conclusion is that what governments are doing when they freeze benefits like this is not just letting inflation decide the value of benefits, they’re also letting inflation change the purpose of benefit rules and sometimes the numbers and types of people affected too.

• Sometimes the results are very odd, as with the £10 Christmas Bonus and the 25p over 80s age addition which have long since lost their original point, but at least they don’t do any harm (at a cost of well over £200 million a year to the taxpayer).
• Sometimes, the combination of inflation and rate freezes dramatically increases the numbers and types of people who have their benefits cut or capped. Freezing the earnings threshold for the High-Income Child Benefit Charge more than doubled the percentage of families with children losing some or all of their Child Benefit until it was eventually increased in April 2024.
• Sometimes, particularly when benefits are designed to meet specific costs, the effects are not just arbitrary, but perverse, and cause real hardship. Housing support for low-income private sector tenants is notionally capped at the lowest 30 per cent of local market rates, but that cap has only been re-rated to 30 per cent twice in the last ten years. The  current freeze has come at a time of high rent inflation, so by the time we started our analysis suggested that average LHA rates was nearer to the lowest 12 per cent of local market rates, rather than 30 per cent. This can cause hardship for people with higher rents, and in the worst case, increase the risk of homelessness, where people cannot find a place they can afford. And that 12 per cent figure was only an average. In areas where rents have been rising especially fast, people will have their housing support capped at much lower levels. People in otherwise-identical circumstances can end up treated very differently, depending on whether rents are going up faster or slower in their area.

So what should the government do? We’re not saying they should just return all rates, thresholds caps to their original values, and maintain them there. Governments must have the freedom to decide on affordability and priorities.

But we are saying that:

• There should be a consistent and systematic review process.
• Governments should be transparent about how uprating decisions are made, and the rationale and consequences of individual decisions.
• The objectives of each measure should be clear, and decisions about uprating should be taken in the light of those objectives.
• If a government thinks a particular entitlement is not affordable, or aligned with its priorities, it should make an explicit decision to reduce or eliminate it, and explain its reasoning. Inflation should not be allowed to alter the value, reach or effect of a policy by default.

If you want to learn more about our detailed findings and recommendations you can find our report here: SSAC Occasional Paper 28: Keeping Pace? Reviewing benefits, thresholds and caps in a changing economy - GOV.UK

[1] Although it now applies to pensioners only.