Six million low-income households face a £1,000 cut to their benefits next year as a result of Chancellor Rishi Sunak’s Spending Review, an economic think tank has warned.
As economic experts began going through the Sunak Spending Review in detail the Resolution Foundation said the chancellor’s failure to extend a temporary £20 increase in Universal Credit beyond next March would hit families just as unemployment levels are expected to peak.
The Resolution Foundation warned of a prolonged "squeeze" on Britain’s living standards following the economic shocks of Brexit, Covid-19 and the hangover from the 2008 financial crash.
The think tank also warned the Chancellor’s plans to cut Universal Credit from April “will see around six million households losing over £1,000” next year.
Chief executive Torsten Bell warned the position was “untenable” and predicted the Chancellor would be forced to change his mind.
He said: “We are expecting the Chancellor to change his mind on that at some point, but he chose not to do so yesterday.”
Meanwhile the Institute of Fiscal Studies said that the results of the Spending Review would not feel much different from a return to austerity for some public services.
IFS chief Paul Johnson said: “It is disappointing that we didn’t have an announcement on Universal Credit. If the Government is not going to maintain it at its current level it should say so explicitly and give people time to prepare – £20 a week is a lot for those dependent on benefits.”
He added: “If Government is going to keep the increase introduced in April then it should have recognised that in its plans. If it does delay announcing the increase until March and is once again unable as a result to increase legacy benefits and contributory benefits at the same time, then that would be simply inexcusable.”
Johnson said: “This may not quite be a return to austerity, but for some public services it may not feel much different.
“Once you account for the Government’s various commitments on health, defence and so on, things look extremely tight for everything that remains.
“Remember that, outside of health, real-terms public service spending was cut by 20 per cent over the decade to 2019−20. Some of those areas could well be facing another bout of austerity if the Chancellor does in fact stick to his spending plans.”
The IFS also criticised the decision to freeze public sector pay in England.
He said: “The decision to freeze public sector pay for some will probably save only between £1 and £2 billion next year. The Chancellor has perhaps picked a big fight over not very much money.”
The IFS warned of tax rises in future and said there was no covid spending built into budgets beyond next Spring.
The IFS chief said: “There is an additional risk lurking here. The Government is benefiting hugely from interest rates at record low levels. Because such a huge fraction of government debt is held by the Bank of England, interest rate rises translate immediately into higher government spending.
“As the OBR made clear, a one percentage point increase in interest rates will now lead to double the increase in debt interest spending, as would have been the case back in March.”
SNP Shadow Work and Pensions Secretary Neil Gray MP commented: “The Chancellor must reverse his decision to slash pay for public sector workers and cut Universal Credit - or he will leave millions of families permanently worse off.
“The threat of a 15-year squeeze on incomes, comes after families have already suffered a decade of Tory austerity cuts and the damage of Brexit, which has taken billions out of the UK economy and pushed millions of people into poverty and hardship.”