Poor British Families May Lose £400 a Year Due to Truss’s Benefits Cut Plan

A new analysis by the British newspaper, The Observer, has revealed that low-income families will lose around £400 a year under Prime Minister Liz Truss's plan to raise interest at rates lower than inflation in order to find ways to fund her tax-cutting growth plan.

The Guardian explained that Truss and its government are considering raising the level of social benefits in line with profits, not inflation. That could mean an increase of 5.5% instead of around 10%, according to the latest official data, saving around £5 billion.

The move would effectively make low-income families lose £395 a year on average. According to estimates by the consultancy Policy in Practice, families would be worse off by £32.91 a month. A rise of just 5.5% will result in a 7.7% loss in disposable income on average as energy and housing prices continue to rise.

 

Even Larger Cuts

Last week, Britain reversed its decision to cut the income tax on the wealthy, just ten days after announcing a budget that sparked chaos in the markets and sharp criticism over the impact of the high cost of living.

On the second day of the ruling Conservative Party's annual conference, Finance Minister Kwasi Kwarteng tweeted that he would not go ahead with scrapping the top 45 percent income tax rate, adding that it had become a source of distraction.

The benefit cuts are even larger for some groups, the Guardian emphasized. It stated: "In-work households lose out by £458. Couples with children are £640 worse off."

Deven Ghelani, the director of Policy in Practice, pointed out: "Low-income households will be worse off next year—the only question is how much. Cuts have consequences, and politics is about choices. Uprating benefits by inflation will show that this government is capable of making the right ones."

Cutting benefits would harm millions of families. Ministers have not made a decision yet, but with Truss and Chancellor Kwasi Kwarteng facing pressure to control spending after their mini-budget to cut taxes, social benefits are seen as an area of ​​savings.

Shang-Jin Wei, a former chief economist at the Asian Development Bank, stressed that: "Prime Minister Liz Truss must reverse her tax cuts and introduce policies to help struggling homeowners, thereby allowing the BOE to focus on restoring price stability."

He added that the "mini-budget" strategy that Truss and Chancellor of the Exchequer Kwasi Kwarteng sought to adopt at the end of last month, based on sweeping tax cuts for corporations and the rich, would likely cause an economy-wide surge in demand. Moreover, it would overheat the UK economy and push up the already-high inflation rate.

 

Severe Repercussions

A new analysis by a Legatum Institute showed that low-income households with children, or people with disabilities, would bear the brunt of any move to uprate universal credit and other working-age benefits in line with earnings rather than inflation.

The conservative think tank stressed that: "Such a move would swell UK relative poverty rates already at their highest level this century, as the cost-of-living crisis leaves millions of people struggling to pay energy bills and put food on the table regularly."

Poverty this winter has increased even after the government's energy support packages. Truss's benefit cuts would boost the overall figure to 16 million, nearly a quarter of the UK population. The Legatum Institute analysis

stated that rising benefits in line with earnings rather than inflation would result in 450,000 more people in poverty in 2023-24.

It emphasized: "Of these, 350,000 would be in households where someone works, and 250,000 in families that included a disabled person. Such a cut would also result in a quarter of a million more people pushed into deep poverty, defined as an income at least 50% below the official poverty line."

People in deep poverty are already struggling much to afford basic necessities. Such as food, energy, clothing, and toiletries.

The impact would be even more severe if the benefits were frozen at their 2022 levels. The Legatum Institute pointed out, "This would result in an extra 1 million people in relative poverty next year, including 700,000 people in deep poverty."

Chart: The Guardian

 

Opposing the Plan

Opposition is already growing among Tory MPs to the idea of ​​not increasing benefits in line with inflation, as former chancellor Rishi Sunak has promised to do. There are also reports that the Treasury is looking for much greater savings than £5 billion. The Treasury Department dismissed any discussion of actions associated with the November financial plan.

Reuters revealed that British Prime Minister Liz Truss triggered a conflict and division in the conservative party on October 4 when she proposed her plan aiming to limit increases in benefit payments to less than soaring inflation as she looks for ways to finance her tax-cutting growth plan.

Lawmakers from the governing Conservatives—even some cabinet ministers—objected to the plan of the party. On the other side, opinion polls showed that the plan would lead Truss to electoral collapse rather than a honeymoon period.

Reuters explained that: Seeking to snap Britain out of more than 10 years of economic stagnation, Truss and her finance minister Kwasi Kwarteng set out 45 billion pounds of unfunded tax cuts on September 23 alongside promises to deregulate the economy to stoke growth.

The Bank of England tried to curb or reduce inflation by raising interest rates to 2.25% for the seventh consecutive time since December 2021, but savings rates failed to keep pace with the pace of rising bank interest rates.