More than 250,000 households will ‘fall into destitution’ next year, bringing the total number of people living in extreme poverty to around 1.2 million unless the government acts to help the poorest families affected by the energy price shock, according to the National Institute for Economic and Social Studies. Research (NIESR).
More than 1.5 million households will see rising food and energy bills exceed their disposable income, forcing them to rely on savings or additional borrowing to make up the shortfall, said the think tank, which has blamed social spending cuts since the Brexit vote in 2016. leaving millions of families in a vulnerable financial situation.
To avoid a rise in poverty levels, the government must immediately increase Universal Credit payments by £25 a week while providing the 11.3 million poorest households with a one-time cash payment of £250, the NIESR has said. .
The dire situation facing many low-income families is likely to persist after the government committed only limited funds for its skills budget and skills upgrading program in the March budget, he said. added.
Inflation, which the NIESR expects to average 7.8% this year after peaking at 8.5% in the autumn – below the Bank of England’s 10% estimate – will fall next year , but the government’s reliance on loans to support poor families, which have to be repaid in subsequent years, will mean that poverty levels will remain high.
The NIESR said the main fuel subsidy – a 5p cut in fuel tax – was poorly targeted and would mainly benefit the wealthiest drivers with the biggest and most fuel-guzzling vehicles.
Explaining his outlook for the economy over the next three years – with weaker growth and rising unemployment leading to a recession in the second half of 2022 – NIESR boss Jagjit Chadha said government policies could be directly accused of harming the real incomes of British households.
“It is quite clear that fiscal policy could be used to smooth out the income shock,” he said.
“Time and time again we were told there was little room for maneuver when the weather got nasty,” he said, when the government “had a borrowing capacity of £20billion. sterling according to its own budgetary rules which could be used to support the poorest families”.
Chadha is a longtime critic of government austerity measures. He said successive governments since 2008 should have been more ambitious rather than leaving much of the job of stimulating economic growth to the Bank of England.
For the future, he said the government was wrong to speed up the budget balance when it should be investing to level the regions and protect the poorest in society.
An increase in the Universal Credit increase of £25 per week between May and October 2022 would benefit around 5.6million households and cost around £1.35billion. A one-off cash payment worth £250 per household for 2022-23 would cost £2.85bn.
Professor Adrian Pabst, Deputy Director of Public Policy at NIESR, said: “Prices will drive up bills, drive down demand and increase income inequality. The severe budget cuts will hit low-income households who live in some of the most economically and socially deprived areas of the country the hardest.
“To prevent another 250,000 households from falling into debt and destitution, the Chancellor should implement a Universal Credit Boost of £25 a week for at least 6 months.”