Research shows recession would hit poorest hardest if benefits cuts go ahead

9 Nov 17

Any future recession will hit the poorest families even harder if proposed benefit cuts go ahead, according to a new report from the Institute for Fiscal Studies.

The benefit changes would have a substantial impact on the poorest 30% of working-age households, the analysis found.

The report said if those families were hit now by the same fall in income workers experienced in 2007-08 and 2011-12, their post-tax incomes would fall on average by 39p for every £1 in pre-tax earnings. That fall would be 53p if a recession kicks-in after the benefits cuts have taken effect.

Proposed cuts include a freeze to most working-age benefits, reductions in child tax-credits and the introduction of a less generous universal credit. As a result, some working households will lose their entitlement to existing benefits and some will see the real-term value of their benefits drop.

Poverty charity the Joseph Rowntree Foundation warned last month that the benefits freeze alone could force half a million more people into poverty by 2020.

Andrew Hood, a senior research economist at the IFS and the author of the report, Recessions, income inequality and the role of the tax and benefit system, explained that the biggest losers would be poorer families with children.

“When governments change the tax and benefit system they should consider the impact on the support the system will provide to households when the next recession hits,” Hood said.

“Planned cuts to working-age benefits will leave low-income households with children in particular more exposed to any future downturn in the labour market, by reducing the extend to which earnings losses would be offset by entitlement to benefits.

“This is particularly important since many in this group have little or no savings which they can draw on during a period of temporary difficulty.”

Despite these warnings about the impact of cuts and the potential economic storms ahead, however, the Office for National Statistics announced yesterday that personal wellbeing has reached its highest average levels since 2011.

The latest figures, the first to be based on a full year of data since the EU referendum, “show small increases in how people in the UK rate their life satisfaction, happiness and feelings that the things they do in life are worthwhile,” explained Matthew Steel from the ONS.

This increase was driven by improved wellbeing in England, Steel added, which was the only part of the UK in which quality of life ratings got better over the last year.

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