The UK Government’s benefits cap could take more than £100m out of the Welsh economy
The UK Government’s benefits cap could take more than £100m out of the Welsh economy and do more harm than the recession, the Bevan Foundation
Under Conservative-Liberal Democrat plans backed by MPs last night, increases in most working age benefits will be capped at 1%.
Ceredigion Liberal Democrat MP Mark Williams abstained on the vote, saying he was unable to support the Government.
Victoria Winckler, director of the Ebbw Vale-based Bevan Foundation, warned: “If the Consumer Price Index increases by 2.5% a year over the next three years while benefits go up by 1%, £106m 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.”
Ms Winckler said the reduction in spending power in Welsh communities could “prove to be a far more dramatic undermining of the economy and prosperity in Wales than the recession itself”.
Attacking the decision, she said: “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 Department for Work and Pensions (DWP) defends the decision on the grounds it means “the welfare budget is sustainable”. The Wales Office argues that benefits have “risen significantly faster than average earnings since the financial crisis,” going up by 20% compared to 10%.
Ms Winckler denied people would lose an incentive to work if benefits rose by a higher amount.
She said: “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 per week.
“Even if benefits rose 2%, it would hardly erode work incentives.”
Ceredigion MP Mr Williams told the Western Mail shortly before the vote: “I am unable to support the Government this evening and will be abstaining in the second reading vote, and will review my position at third reading. I take great exception to some of the emotive language being used to describe welfare benefit recipients by some Conservatives and in the media, and in particular the simplistic notion that this is about scroungers and strivers.
“Yes there are some who abuse the system, but the characterisation of all welfare recipients that I meet in my surgeries as scroungers is not something I recognise.”
Plaid Cymru MP Jonathan Edwards said: “There is no question that the proposals included in the Welfare Uprating Bill will have a disproportionate impact on the nations and regions outside the South East of England. Wales will be hit particularly hard as a far greater percentage of our population are recipients of tax credits and/or benefits.
“Therefore, the real-term cut in these entitlements will inevitably have a dramatic effect on the amount of money spent in local economic across Wales, clearly highlighting the entirely self-defeating nature of the coalition’s economic experiment.”
He added: “In recent years, we have seen a significant drop in how benefit rises are calculated – from RPI to CPI to just 1%. Against a backdrop of soaring prices for daily essentials such as food and fuel, this change has created a devastating spiral of decline that is polarising wealth across the British state at both regional and individual level, and institutionalising poverty and unemployment in many areas.”
The Unite trade union also expressed dismay at the benefits cap publishing findings from a poll of 6,000 people, most of whom are members of the union, showing only 17% thought the changes would “make the system fairer”. According to Unite, nearly one in four (24%) of those losing out said they would cut back on heating and 23% would do so on food.
General secretary Len McCluskey said: “These latest cuts to welfare show the disdain with which this government views ordinary people and underlines just how out of touch they are with working families struggling to make ends meet. Cuts to vital support, like housing benefit and tax credits, will have a devastating impact on many in society, sucking money out of the economy and plunging people in to poverty.
“This is not just self-defeating, it will set this nation back a generation.”
The Institute for Fiscal Studies (IFS) this week found half of working-age households with someone in work would be affected in some way. The average loss would be £165 a year for seven million families – compared with around £215 for the 2.5 million workless households hit by the cap,
Former Lib Dem children’s minister Sarah Teather said she would not support the Welfare Benefits Up-rating Bill because it would make poverty “significantly worse”.
Deputy Prime Minister Nick Clegg said Labour had to explain why it could support a 1% limit on pay rises for “doctors, teachers, nurses in the public sector” and “not take exactly the same approach in this area”.
Mr Clegg said the decision to raise the income tax threshold would benefit more than 20 million basic-rate taxpayers.
Shopworkers’ union Usdaw has denounced the cap as the “cruellest of cuts at a time when families are struggling to make ends meet”.
Usdaw calculates that by 2015-16, a family with one child will have lost £784, those with two children will lose £1,091 and families with three children will be £1,398 worse off.
The DWP’s own impact assessment states: “Lone parents are the family type who are most likely to be affected and also have the highest average change (-£5 per week). This is because they have a lower employment rate than average and also often qualify for in-work support.
“In contrast, pensioners are the least likely group to be affected, as pensioner benefits are protected.”