Pathways to Work? Health and disability Green Paper analysis

Welfare Green Paper: what we know and what we don’t know

Work and Pension Secretary Liz Kendall made a statement to the House of Commons yesterday outlining the main areas of ‘Pathways to Work”, the UK Government’s Green Paper that has been in the rumour mill for weeks. The statement contained some well trailed announcements and some new details, although there are also still some significant gaps in our understanding (writes FRASER of ALLANDER INSTITUTE team).

PIP will not be frozen, but eligibility will be restricted

The Secretary of State’s headline announcement was in line with news over the weekend, which suggested that rates will not be frozen. Instead, the criteria for getting the daily living element of the Personal Independence Payment (PIP) will be raised, with a minimum of four points on one daily living activity.

The Green Paper in this section is heavily focussed on the ‘sustainability’ of the disability benefits system, and on needing to make the system more ‘pro-work.’ It’s worth noting, however, that work status is unrelated to being in receipt of disability benefits, which are designed to address the additional costs of living with a disability, whether or not someone is in work.

Sustainability too is a nebulous concept in this space. But while it makes sense to talk about sustainability of the public finances as a whole, it is not immediately clear that a growing area of spending is necessarily unsustainable, especially when responding to a clear need in society. The Government has choices – for example, to raise taxes or to cut other areas of spending. So far from being a macroeconomic imperative, to focus on disability benefits seems clearly a political choice.

There is little in the way of details of how much the UK Government intends to save in the Green Paper, but the Secretary of State mentioned the much bandied about £5bn by 2029-30 that it intends to include in the OBR forecast. We do not know how much of this figure will be generated from PIP rather than other changes.

What we now know is that the whole of the spending reductions on PIP will come from the lower end of the average award, as it is being driven through the raising the bar for claiming. But that also means that all else equal, even more people will lose access to the benefit. A quick calculation suggests that for every £1bn a year saved, it could mean around a quarter of a million fewer people receiving PIP, which would be a huge change.

Work capability assessment scrapped from 2028

This is a significant change, and one for which consequences in Scotland are still unknown. At the moment, the work capability assessment (WCA) is used to assess fitness for work. From 2028, the assessment for PIP will instead be used as the basis for universal credit (UC) elements related to health conditions.

This creates an issue in Scotland, because Social Security Scotland runs its own (different) assessment for Adult Disability Payment (ADP), which is the devolved equivalent of PIP. But UC is a reserved benefit administered by DWP, and that means that potential claimants in Scotland would not have access to the PIP assessment that would be used for determining eligibility for health-related UC elements. And with the PIP assessment being tightened, it will be likely further out of step with ADP.

We’ll have to wait and see what solution there will be to this – the Green Paper merely states that “consideration will be needed.” But this is an important issue that requires action on the part of both UK and Scottish departments to ensure access by claimants to this is maintained. It highlights a broader issue of the interaction between the benefits systems which is likely to be put under further strain as systems evolve separately in Scotland.

On a broader point, these proposed changes come at a time when people in receipt of Employment and Support Allowance are due to be migrated to UC by the end of 2026. Our research with people with learning disabilities showed that many are already really concerned about the upcoming changes, and these will be further changes to an already complex system. It will be crucial to clearly communicate all the changes, particularly in accessible formats.

UC rates to be rebalanced, and access to health elements restricted for those under 22

The Secretary of State also announced a big change in the relative levels of the standard and health elements of UC. The health element of UC – which is paid on top of the standard allowance – will be frozen in cash terms for the rest of the decade for those already in receipt of it, and new claims will be paid at around half the current rate (£50/week compared with the current £97/week). Alongside this, the UK Government says it will uprate the UC standard allowance by more than inflation (6% in 2026-27).

The health element of UC will also be tightened in several ways. One is that claimants will be expected to have “much more active engagement and support” in relation to work. The other large change proposed is the consultation on delaying access to the health element of UC until potential claimants are 22, with the justification being the lower likelihood of those in receipt of that element being in employment as well as the fact that those under 22 will be covered by the Youth Guarantee of employment support, training or an apprenticeship.

We note, however, that employability is an area of devolved competence, and indeed a similar scheme already exists in Scotland.

A consultation on a new ‘unemployment insurance’

The UK Government is consulting on an interesting proposal for a unified ‘unemployment insurance’ benefit, which would replace both contribution-based Jobseeker’s Allowance and Employment and Support Allowance with a single, time-limited entitlement. This is a step more in the direction of most European systems, in which contributory systems provide a much higher level of income replacement than UC, although for a limited period of time. The proposed rate is much higher than contributory JSA, which has never been a big part of the welfare system in the UK.

Higher income replacement systems are the basis of highly successful active labour market policy systems such as the Danish ‘flexicurity’ approach, and which could help smooth out cliff-edges in the labour market and incentivise retraining, but this proposal – while probably a good idea – falls well short of that kind of system. In any case, it’s also purely consultative – and as it might well cost money on net (at least in the short run), we wait to see if anything will come of this.

‘Right to try’ – a welcome development

One of the measures mentioned in the Green Paper that could have a big positive impact is the announcement of legislation to guarantee that simply starting work will not lead to a reassessment or award review. The fact that this can happen at the moment is acts as a barrier to entering employment, especially if people want to work but are unsure if it will be a good fit for their situation as they might have to reapply for benefits subsequently.

Our research with people with learning disabilities indicates that this ‘right to try’ approach might work well, as the binary ‘can work/can’t work’ doesn’t fit well for them. Many people want to work and just need the right support – so we are hopeful that some of these changes will provide just that.

We know very little about how most of the announcements will affect Scotland

PIP is being replaced in Scotland with ADP, and migration is expected to be concluded this year. None of the announcements therefore affect Scottish claimants of ADP, but they do affect the finances of the Scottish Government. As we discussed last week, the Scottish Government’s block grant adjustment is based on the projected expenditure in England and Wales, and therefore a tightening of access to PIP will (all else equal) make the Scottish Budget worse off. It is then the Scottish Government’s decision to move in lockstep or to find the additional funds from other sources.

Because the Green Paper has no costings for how much of the £5bn a year in savings comes from PIP, it’s impossible for us to say how much this will mean for the Scottish Government’s Budget. But the ready-reckoner we provided last time out – showing an effect of £90-115m for every £1bn reduction in PIP spending by the UK Government – still applies.

As we discussed before, the use of the PIP assessment for health-related UC claims is problematic in the absence of any further action, as this is not available in Scotland and the systems are diverging. The UK Government’s Green Paper says this will require “consideration”, but this is a pretty substantial change that we hope will be solved in good time. Given the proposal is for this to be done from April 2026, it is fairly urgent to get this resolved.

Employability support is a devolved area, but the UK Government says it will include an additional £1 billion to create a guarantee of personalised employment, health and skills support. Given that, we’d expect Barnett consequentials to flow from this, but the Green Paper does not explicitly state that – we’ll wait to see if there are news on this.

The restrictions on health-related UC claims for under 22s will apply in Scotland, as it’s a reserved benefit. Notwithstanding the issues with the PIP/ADP assessment compatibility, this is an area where there has certainly been growth in the past few years: in December 2024, 11,300 people aged 16-21 were in receipt of the health element of UC, compared with 4,600 in December 2019.

This gives us a first glimpse of the amount of people that might be affected by this change if it were to be introduced.

Green Paper delivers tiny income gains for up to four million households, at cost of major income losses for those who are too ill to work or no longer qualify for disability benefit support, says RESOLUTION FOUNDATION

The Health and Disability Green Paper will boost Universal Credit (UC) support for up to four million families without any health conditions or disability by around £3 a week. But these tiny gains are overshadowed by reforms that risk causing major income losses for those who are too ill to work, or those who no longer qualify for disability benefits, the Resolution Foundation said yesterday (Tuesday).

The Green Paper today sets out major reforms on entrances into the benefits system, entitlements within the system, and exits into work that aim to cut spending by £5 billion a year by the end of the decade, and change how people interact with the system.

The main savings are to be achieved through restricting entitlement to PIP – a benefit that is paid regardless of whether someone is in work, to compensate for the additional costs of being disabled.

The Foundation says that if the Government plans to save £5 billion from restricting PIP by making it harder to qualify for the ‘daily living’ component, this would mean between 800,000 and 1.2 million people losing support of between £4,200 and £6,300 per year by 2029-30.

With seven-in-ten PIP claimants living in families in the poorest half of the income distribution, these losses will be heavily concentrated among lower-income households. This looks like a short-term ‘scored’ savings exercise, rather than a long-term reform, says the Foundation, given that Ministers have also said they will look again at how PIP is assessed in the future.

Further savings are to be achieved by cutting the level of the health-related LWCRA element within UC, which is currently claimed by 1.6 million people. The proposed cuts are focused on young people (aged 16-21), who may no longer be eligible for any extra support, and those who fall ill in the future, as their additional support will be halved, from £97 per week in 2024-25 to £50 per week in 2026-27.

Reinvesting some of the cuts to health-related UC into boosting the basic award for UC (which, at around £3 more per week, is roughly a sixth of the temporary £20 a week uplift to UC during the pandemic), and greater support for the newly unemployed should benefit up to four million families who don’t receive health-related UC.

Reducing the financial gap between health-related and basic UC should reduce the incentive for people to claim incapacity benefits (which, for a single adult, is over twice as much as basic UC at present). Along with the additional employment support provided to people on UC, the Government hopes this will boost employment, although figures will not be available until the Office for Budget Responsibility publishes its spring forecast next week.

Louise Murphy, Senior Economist at the Resolution Foundation, said: “The package of measures announced in today’s Green Paper should encourage more people into work. But any living standards gains risk being completely over-shadowed by the scale of income losses faced by those who will receive reduced or no support at all – irrespective of whether they’re able to work.

“Around one million people are potentially at risk of losing support from tighter restrictions on PIP, while young people and those who fall ill in the future will lose support from a huge scaling back of incapacity benefits.

“The irony of this Health and Disability Green Paper is that the main beneficiaries are those without health problems or a disability. And while it includes some sensible reforms, too many of the proposals have been driven by the need for short-term savings to meet fiscal rules, rather than long-term reform.The result risks being a major income shock for millions of low-income households.”

Money and Mental Health Policy Institute: Response to government welfare green paper

The government has published its welfare green paper, which outlines its proposals to reform the welfare system.

In particular, the green paper sets out plans to make it harder for people to qualify for Personal Independence Payments (PIP) — a benefit which people with disabilities and long-term ill-health can claim to help cover the extra costs associated with their disability, and which is not connected to work. In addition, people aged under 22 will not be able to qualify for the health top-up element of Universal Credit.

The government has also announced £1bn additional funding for personalised employment support to help people with disabilities move into work, and that people receiving benefits will be given a “right to try” work without losing their benefits entitlement.

Commenting on the proposals, Helen Undy, Chief Executive of the Money and Mental Health Policy Institute, said: “PIP is an absolute lifeline for thousands of people with mental health problems. It can be the difference between being able to afford basic things like a phone to call your crisis team or help to clean your home, or living in disarray and increasing isolation.

“Making it harder to access will jeopardise people’s financial security and cause serious distress, which won’t set up people to go back into work and to thrive.

“These changes will mean that needing help to wash or get dressed because of your mental health wouldn’t be enough to qualify for PIP.

“The government says it will ensure people with ‘genuine need’ aren’t affected, but we’re really concerned that these new reforms will take us further back to the days when people with mental health problems were treated as less worthy of help than those with physical health issues.

“The new ‘right to try’ a job without losing the benefits is welcome, as is the funding for personalised employment support for people with disabilities or health conditions. But introducing these measures alongside cuts to PIP and stopping young people from getting incapacity benefits will do more harm than good.

“It is a short sighted approach that will have a devastating impact on many people’s finances and mental health, and we urge the government to rethink these plans.”

Changes in family spending hold key to Britain’s decarbonisation drive – but Government must make sure poorer households see the benefits

Changes in family spending – which Westminster’s Climate Change Committee (CCC) forecast will ultimately save the average household £1,080 a year in 2050 – will be the key to the next phase in Britain’s decarbonisation drive, but policy must ensure these gains are shared with poorer families, the Resolution Foundation said this week.

The CCC’s Seventh Carbon Budget shows that households cannot continue spending in the same way, with close to half of emissions reductions needed by 2040 made by changes to spending on surface transport (27 per cent), home upgrades (14 per cent), and flying (5 per cent).

The scenarios set out show that these changes should benefit families in the form of net savings in every year from 2026. The Foundation calculates that by 2050, the poorest fifth of households could see the share of their spending that goes on energy bills and driving cut by 6 percentage points.

But while the net zero transition will bring savings overall, there are also costs to switching to new technologies, particularly heat pumps, which the CCC estimate will still cost three times more a year than a gas boiler in 2050. And without government support, high upfront costs risk locking lower-income families out of the future savings that net zero will bring.

The Foundation notes that the poorest fifth of households currently have only 9 per cent of electric vehicles, while over the past decade heat pumps were more than twice as likely to be installed in the richest neighbourhoods than the poorest ones.

A successful net zero transition must ensure the costs and benefits are spread fairly. The CCC analysis suggests that a household without a car in the lowest-income quintile would save nothing, while a richer car owning household would see average benefits of £1,400 a year.

The Government should therefore look at ways of smoothing the transition by helping poorer families with the additional costs of heat pump installation and by designing fair alternatives to taxes like Fuel Duty.

Zachary Leather, Economist at the Resolution Foundation, said: “The CCC’s report highlights how the next phase of Britain’s decarbonisation drive will directly affect families’ day-to-day lives.

“While politicians fret and argue about the cost of net zero, today’s report shows that there are long-term benefits for consumers and the environment.

“But the high upfront costs of net zero technologies like EVs and heat pumps risk locking lower-income households out of the savings that they bring in the long run.

“A successful transition will require Government to get serious about supporting lower-income households in accessing heat pumps and EVs.”

Child Poverty: Turning the Tide

NEW REPORT BY RESOLUTION FOUNDATION

The Government is due to publish a Child Poverty Strategy later this year, with a promise to bring about “an enduring reduction in child poverty” (write ALEX CLEGG and ADAM CORLETT of The Resolution Foundation).

In this report we focus on the Government’s headline metric of relative child poverty and look at what might be needed to achieve this welcome goal in the face of significant headwinds.

We consider the role of improvements in parental employment and housing affordability, but also of reforms to social security, and we show what is needed to make sure that any gains in this Parliament are not lost in future.

KEY FINDINGS

On the Government’s headline measure of relative poverty after housing costs, 4.3 million children (three-in-ten) were living in relative poverty across the UK in 2022-23. On an international measure accounting for both housing and energy costs, the UK’s relative child poverty rate is higher than in any EU or EFTA nation bar Greece.
On present policies and our baseline economic forecasts, we project that UK child poverty will rise over this Parliament from an estimated 31 per cent in 2024-25 to reach 33 per cent by 2029-30, its highest rate since 1998-99, and the highest number of children on record, at 4.6 million. This is partly because the outlook includes £3 billion of scheduled welfare cuts, in the form of the ongoing roll out of the two-child limit and family element abolition, and real cuts each year in the value of Local Housing Allowances and the benefit cap.
It is right to be ambitious about employment rates and housing supply. Concerted action on these could lower child poverty by 130,000 compared to our base scenario, and would provide fiscal room for new spending (as would higher-than-expected growth more generally). But without changes to social security, poverty would still rise over the Parliament.
The child poverty priority should be to abolish the two-child limit, and the benefit cap alongside it, which would take an estimated 500,000 children out of poverty in 2029-30. This would cost £4.5 billion in 2029-30 but is the most efficient anti-poverty measure the Government could take. Turning the two-child limit into a three-child limit (and assuming the benefit cap is still abolished) would have about two-thirds of the impact at two-thirds of the cost.
Free School Meal entitlement should be extended to cover all families on Universal Credit, which would take around 100,000 children out of poverty, with money found from within existing departmental spending plans. For further poverty reductions, Local Housing Allowance should be repegged to local rents – rather than remain frozen indefinitely – and Universal Credit’s basic adequacy tackled, for example by reversing the abolition of the ‘family element’. This would reduce child poverty by a further 140,000. These policies could mean that, by 2029-30, child poverty could be around 900,000 lower than in our default projection, at 3.7 million: getting below 4 million for the first time since 2015 outside of 2020-21. And the child poverty rate could be cut to its lowest in four decades, at around 27 per cent, in the highest-ambition scenarios.
The ambitious package would have a price tag of around £8.5 billion, falling to £5.5 billion if the extension of free school meals is funded within existing departmental budgets and the Government can succeed in raising employment and building more homes.
In the longer-term, family benefit uprating needs to move to tracking average earnings – alongside the State Pension – or else relative child poverty will always tend to rise as social security entitlements fall behind average earnings.

Read Resolution Foundation’s TURNING THE TIDE report:

Turning.the_.tide_Download

Low Pay Britain: “miserly” sick pay system is punishing low-paid workers, says TUC

LPB-2023 Download

The UK workforce expanded in the three months to February, driven by young people leaving full-time education and moving into work, but the longer-term problem of rising ill-health continues to worsen, the Resolution Foundation said in response to the latest ONS labour market statistics yesterday.

The UK workforce continued to expand in recent months, with employment up 170,000 on the quarter, and economic inactivity down 230,000. The fall in inactivity was driven by full-time students: the number of people inactive due to being a full-time student was down 180,000 on the quarter.

The labour market has loosened overall, with short-term unemployment (up to 6 months) rising by 52,000 to above normal pre-pandemic levels, and vacancies falling by 47,000 on the quarter.

Less encouragingly, inactivity among older workers aged 50-64 remains high – up 298,000 on pre-pandemic levels – while the number of people inactive due to ill-health rose to a record high of over 2.5 million.

Reversing this trend – which predated the pandemic – is a huge priority that is likely to take years to address, says the Foundation, and a key test of the new Health and Disability White Paper.

Nominal pay growth strengthened in February, driven by the gap between public-sector (5.3 per cent) and private sector (6.1 per cent) pay growth closing. However, with inflation still at double digits, pay packets continue to shrink in real terms.

Louise Murphy, Economist at the Resolution Foundation, said: “Britain’s workforce continued to expand in early 2023 as thousands of full-time students moved into work. But while the young entered work, but the old and sick did not. Reversing these trends are a major problem for policy makers across government to confront.

“Strong growth in the public sector has helped to close the gap in pay growth with the private sector. But the picture remains that almost all workers across Britain are seeing their pay packets shrink in real terms, which will continue for the foreseeable future.”

Commenting on the Resolution Foundation’s Low Paid Britain Report, which criticises the UK’s lack of decent sick pay, TUC General Secretary Paul Nowak said: “Nobody should be plunged into financial hardship if they become sick.

“But Britain has one of the most miserly sick pay rates in Europe.

“This is disproportionately punishing low-paid workers and leaving them without a safety net.

“We must fix our broken sick pay system by making statutory sick pay available from day one and raising it to the level of the real living wage.

“The lack of decent sick pay cost us dear during the pandemic. The government should have learned this lesson.”

On the need for a higher minimum wage and sector-wide fair pay agreements, Paul Nowak added: “Let’s not kid ourselves. Low-paid workers remain under huge financial strain.

“Energy bills have shot up by £67 a month and food prices are through the roof.

“It’s time to put an end to low-pay Britain once and for all. That means getting the minimum wage to £15 per an hour as soon as possible.

“And it means introducing industry-wide fair pay agreements so that all workers have a minimum set of pay and rights.”

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Living Wages towards Living Pensions

News from THE POVERTY ALLIANCE

Our Living Wage Scotland team has had great success in encouraging 3,000 businesses in Scotland to become accredited Living Wage employers. Now the Living Wage Foundation is moving into a new area.

The Living Pension accreditation scheme was launched in Edinburgh on 21 March 2023. It is a voluntary savings target for employers and aims to help workers build up a pension pot that will provide enough income to meet basic everyday needs in retirement.

Research completed by the Resolution Foundation in 2022 showed that four in five workers, and 95% of low-paid workers, paying into defined contribution schemes are not saving at the level needed to reach an acceptable standard of living in retirement.

You can read more about Living Pensions here, and you can also sign up to a free webinar being hosted by the Living Wage Foundation on Tuesday 16 May 2023.

Community pillars join hands with Islamic Relief UK to help struggling families hit by the cost of living crisis

Blackhall Mosque – Sunday 29 January House O’Hill Rd, Edinburgh EH4 2AJ

Islamic Relief UK is partnering with community pillars including Blackhall Mosque, Crookston Community Group and Masjid Al Hikmah to distribute 500 essential food hampers and supermarket vouchers to vulnerable families.

The new year continues to see the cost of living crisis pushing families into poverty and Scotland has seen an alarming rise in food insecurity and the need for financial assistance, fuelling the need for food banks across the city.

Islamic Relief UK will continue to support the most affected through food banks, mosques and other organisations but are calling on the UK government to ensure people have adequate incomes to cover the essentials.

A new report by the Resolution Foundation finds that there are large increases in people unable to afford essentials compared to the pre-pandemic period. In November 2022, 28 per cent (up from 9 per cent pre-pandemic) of adults say that they could not afford to eat balanced meals, and 11 per cent or 6 million adults (up from 5 per cent pre-pandemic) reported being hungry in the past month but they didn’t eat as they lacked enough money to buy food.

These very alarming outcomes are more common among groups known to experience disadvantage. This includes low-income families, those suffering from domestic abuse, the homeless, asylum seekers and refugees who were already struggling to feed themselves.

Many families in Scotland have been hit hard by the pandemic and suffered a cold Winter of choosing whether to heat or eat.

To help some of the most vulnerable, hampers will be packed with essential food by staff and volunteers, before delivery to locations across the city and residents.

The food packs will contain essential items such as bread, pasta, tea, biscuits, oil, sugar and others.

Tufail Hussain, Director of Islamic Relief UK said: “Food banks are not a sustainable or dignified way to help people who are struggling to survive because they do not have a sufficient or reliable income. We will continue to support the most vulnerable through our programmes, but food banks should not exist in one of the wealthiest countries in the world.

“The current cost of living crisis has revealed just how much the UK’s benefits system is failing to support those on the lowest incomes. Only long-term structural change will give people the best chance of escaping poverty and living with dignity.

“The UK government must do more to deal with the immediate impacts of the cost of living crisis, but also undertake a fundamental review of the UK’s social security system with a view to ensuring benefits provide people with an adequate income to cover their essential needs.”

About Blackhall Mosque and Association of Scottish Muslims

Association of Scottish Muslims (formely CEPA) is a registered charity founded in 2001 by concerned Muslims from Edinburgh. Its purpose is to work with the Muslim community and statutory organisations to build an infrastructure to provide a range of services to promote the inclusion, the development and the welfare of Muslims, enabling them to become a responsible and thriving part of civic life.

Locations:

Masjid Al Hikmah – Saturday January 28 2023 11am – 4pm 31-33 St Clement Street, Aberdeen, AB11 5FU

Blackhall Mosque – Sunday 29 January, 1 House O’Hill Rd, Edinburgh EH4 2AJ

Crookston Community Group – Tuesday January 31 11am-3pm 1005 Paisley Road West, Glasgow, G52 1EQ

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Spring Statement: Lack of support will see 1.3 million people pushed into absolute poverty next year

In his Spring Statement, the Chancellor promised to support families through the cost of living crisis today, and to cut their taxes in the future. But his failure to deliver on both of these means that absolute poverty is expected to rise by 1.3 million people next year, while only one-in-eight workers will see actually see their tax bills fall by the end of the parliament, according to the Resolution Foundation’s overnight analysis of Spring Statement 2022 today.

Inflation Nation shows that faced with an unprecedented squeeze on family’s household finances and a significant boost to the public finances, the Chancellor opted for a big but poorly targeted policy package focused on partially offsetting some of the big tax rises he’d previously announced, rather than on supporting those families hit hardest by the cost of living crisis.

Key findings from the overnight analysis include:

Families face £1,100 income losses. The scale of the cost of living squeeze is such that typical working-age household incomes are to set to fall by 4 per cent in real-terms next year (2022-23), a loss of £1,100, while the largest falls will be among the poorest quarter of households where incomes are set to fall by 6 per cent.
Absolute poverty rises by 1.3 million. The scale and distribution of the cost of living squeeze, coupled with the lack of support for low-income families, means that a further 1.3 million people are set to fall into absolute poverty next year, including 500,000 children – the first time Britain has seen such a rise outside of recessions.
Tax rises for seven-in-eight workers. Considering all income tax changes to thresholds and rates announced by Rishi Sunak, only those earning between £49,100 and £50,300 will actually pay less income tax in 2024-25, and only those earning between £11,000 and £13,500 will pay less tax and National Insurance (NI). Of the 31 million people in work, around 27 million (seven-in-eight workers) will pay more in income tax and NI in 2024-25.
A £11,500 wage loss. With real wages in the midst of a third major fall in a little over a decade, average weekly earnings are on course to rise by just £18 a week between 2008 and 2027, compared to £240 a week had they continued on their pre-financial crisis path. This lost growth is equivalent to a £11,500 annual wage loss for the average worker.
A parliament of pain. Typical household incomes are forecast to fall by 2 per cent across the parliament as a whole (2019-20 to 2024-25), making this parliament the worst on record for living standards, beating the 1 per cent income fall over the course of the 2005-05 to 2010-11 parliament.
Rapid fiscal consolidation. The decision to bank much of the borrowing windfall set out by the OBR sees borrowing set to fall rapidly from 14.8 per cent of GDP in 2020-21 to 1.3 per cent of GDP in 2024-25 – lower than it was expected to reach pre-pandemic. This increases the Chancellor’s fiscal headroom at the end of the parliament from £18 billion to £28 billion, the equivalent of a further 4 to 5p cut in the basic rate of income tax.

Torsten Bell, Chief Executive of the Resolution Foundation, said: “In the face of a cost of living crisis that looks set to make this Parliament the worst on record for household incomes, the Chancellor came to the dispatch box yesterday promising support with the cost of living today, and tax cuts tomorrow. Significant measures were announced on both counts, but the policies do not measure up to the rhetoric.

“The decision not to target support at those hardest hit by rising prices will leave low-and-middle income households painfully exposed, with 1.3 million people, including half a million children, set to fall below the poverty line this coming year.

“And despite the eye-catching 1p cut to income tax, the reality is that the Chancellor’s tax changes mean that seven-in-eight workers will see their tax bills rise. Those tax rises mean the Chancellor is able to point to a swift fiscal consolidation and significant headroom against his fiscal rules.

“The big picture is that Rishi Sunak has prioritised rebuilding his tax-cutting credentials over supporting the low-to-middle income households who will be hardest hit from the surging cost of living, while also leaving himself fiscal flexibility in the years ahead. Whether that will be sustainable in the face of huge income falls to come remains to be seen.”

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Gove: Levelling Up invitation to ‘join forces for the common good’

The Secretary of State for Levelling Up Michael Gove has written to the First Ministers of Scotland, Wales and Northern Ireland following the publication of the Levelling Up White Paper.

In the letters the Secretary of State for Levelling Up:

discusses the publication of the Levelling Up White Paper
calls for the First Ministers of Scotland, Wales and Northern Ireland to work with the UK government to overcome shared challenges

The Scottish Government is yet to respond.

LEVELLING UP: REACTION

Responding to the publication of the levelling up white paper, TUC General Secretary Frances O’Grady said: “If we don’t level up at work, we won’t level up the country.

“But the government has failed to provide a serious plan to deliver decent well-paid jobs, in the parts of the UK that need them most.

“Insecure work and low pay are rife in modern Britain. And for far too many families hard work no longer pays.

“With the country facing a cost-of-living crisis, working families need action now to improve jobs and boost pay packets – especially after more than a decade of lost pay.

“Ministers should have announced a plan to get real wages rising – starting with a proper pay rise for all our key workers and the introduction of fair pay deals for low-paid industries.

“And they should have delivered the long-awaited employment bill to ban zero hours contracts – as well as new, meaningful investment in skills and good green jobs of the future.

“Without a plan to deliver decent work up and down the country, millions will struggle on, on low wages, and with poor health and prospects.”

Recent polling published by the TUC found the British public’s number one priority for levelling up is more and better jobs.

The TUC polling, conducted by YouGov, reveals that the most popular priority for levelling up, chosen by one in two Britons, is increasing the number and quality of jobs available.

Increasing the number and quality of jobs is popular across the political spectrum. Half (49 per cent) of those who voted Conservative in the 2019 general election picked it as their top priority, along with more than half of Labour voters (56 per cent) and Lib Dem voters (54 per cent).

Matthew Fell, CBI Chief Policy Director, said: “The Levelling Up White Paper is a serious assessment of the regional inequalities which have hamstrung the UK’s economic potential for generations.

“It offers a blueprint for how government can be rewired and an encouraging basis for how the private sector can bring the investment and innovation to start overcoming those deep-rooted challenges, and power long term prosperity for every community, wherever they live.

“The picture it paints of a reinvigorated 2030 UK can inspire public and private sector partners to unite on shared missions for improving health, wealth, growth and opportunity across the country.

“Crucially, it accepts the CBI view that business-driven economic clusters – enabling every region and nation to build its own unique competitiveness proposition – can be a catalyst which brings levelling up ambitions to life.”

University of Birmingham’s John Bryson on the Levelling Up announcement: “The UK has always suffered from uneven development and this is reflected in all measures of well-being – from salaries to place-based differences in mortality rates and morbidity.

“There is no country on this planet that does not suffer from some form of uneven place-based outcomes. The implication is that any attempt to remove place-based uneven outcomes will and must fail. The policy outcome might mean some alteration in the extent or degree of unevenness, but unevenness will continue to persist.

“No political party will be able to develop effective solutions to create a level playing field. Nevertheless, this does not mean that policies should not be designed to support and facilitate some form of more even development. However, the outcome will still be the persistence of uneven outcomes.

“The key to any levelling-up agenda is to accept that every place is different and that there are multiple alternative place-based pathways; London can never become Newcastle and Newcastle can never become London.

“The levelling-up agenda needs to be positioned around a debate that is not based on closing the gap between the richer and poorer part of the country, but instead must be framed around facilitating place-based responsible inclusive prosperity.

“This must be the focus as any policy targeted at economic growth can never be sustainable. The levelling-up policy initiative ultimately must be designed to encourage inclusive carbon-light lifestyles. One implication is that levelling-up might also require some degree of levelling-down.”

Campbell Robb, Nacro chief executive said: “We know tackling poverty and inequality is key to levelling up. For over 50 years Nacro has been embedded in communities helping some of our nation’s most vulnerable people through our housing, education, and justice services.

“We see a huge amount of unmet need in our country. We need radical change to the systems that support people and significant funding to address this need, not just ambitions and slogans.

“Until there is right support, opportunity, and funding in place for everyone to succeed regardless of the circumstances, we cannot truly claim to be levelling up”

Torsten Bell, Chief Executive of the Resolution Foundation, said: “We now know what levelling up is – George Osborne plus New Labour.

“The White Paper is all about combining the devolution of the former Conservative Chancellor, with the bigger and more activist state focused on deprived areas of the last Labour government.

“There is a strong case for both. Whether they can be delivered very much remains to be seen.”

Responding to the publication of Government’s Levelling Up the United Kingdom White Paper, Social Mobility Commission Chair Katharine Birbalsingh and Deputy Chair Alun Francis said: “We welcome the publication of the Levelling Up White Paper, and the fact that it gives a clear framework to address disparities between regions and communities.

“These communities are full of talented individuals and we must do everything we can to empower them to thrive. Each of the missions the paper sets out are hugely important, and it is crucial that checks and balances are in place to ensure that local government bodies, both existing and new, are held to account for their delivery.

“The Commission has been clear that social mobility must be a core objective of levelling up. We are pleased to see that equipping young people with the tools they need to succeed in life is at the heart of this strategy, and that it includes measures that can contribute to social mobility through every stage of a young person’s journey, from early childhood through education, training and employment.

“The missions are aspirational and pose the right questions, but are also hugely ambitious. The test will be in the detail and the implementation – not just boosting skills, but which skills will be taught and how; not just aiming for essential literacy and numeracy, but defining the most effective ways to achieve them.

“Ultimately, levelling up will be judged on how well it creates opportunities in places they did not exist before. A key test will be how we help those with the fewest opportunities find decent work – this is not just about stories of rags-to-riches. More still needs to be done to stimulate the creation of much-needed quality private sector jobs in the most deprived areas.

“As the Social Mobility Commission we stand ready to work with the government to flesh out that detail, advise on the best ways to make these missions a reality, and ensure that levelling up empowers people up and down the country to stand on their own two feet.”

Finally, after months of delays, the levelling up White Paper is out! So was it worth the wait?

Levelling Up White Paper leaves low paid workers behind

As the TUC has argued, you can’t level up without levelling up at work. In-work poverty, driven by the prevalence of low-paid and insecure work, is sky-high in every region and nation of the UK. This reflects the fact that low-paid sectors, such as retail and social care, are major employers in every area of the country (writes TUC’s JANET WILLIAMSON).

And more and better jobs is the public’s top priority for levelling up, with recent polling for the TUC conducted by YouGov finding that increasing the number and quality of jobs is seen as a priority for levelling up by one in two people from right across the political spectrum. Does the White Paper deliver this?

The White Paper sets out 12 missions – or aims – spanning living standards, R&D, transport, digital connectivity, education, skills, health, well-being, pride in place, housing, crime and local leadership. There is not a specific mission on work, but the living standards mission is “By 2030, pay, employment and productivity will have risen in every area of the UK, with each containing a globally competitive city, and the gap between the top performing and other areas closing.”

So, what is the plan for achieving this?

In a nutshell, it is to grow the private sector and improve its ability to create new and better paid jobs. There are five strategies to support this aim, all of which fall under a typical ‘industrial strategy’ umbrella: improving SME’s access to finance; boosting institutional investment, including from the Local Government Pension Scheme (LGPS) and the recently established National Infrastructure Bank; attracting foreign direct investment and using trade policy, in particular freeports, to boost investment; improving the diffusion of technologies and innovation; and supporting and growing the manufacturing sector.

There are some important questions to be answered in relation to some of these strategies; for example, it is vital that the LGPS is invested in the long-term interests of its members, without its funds being diverted towards other purposes. And each deserves proper examination in its own right.

But what they have in common is that all of them aim to create a better distribution of well-paid and highly skilled jobs around the country. This is needed – but what about the jobs that people are already in? There is no plan to address inequality within the labour market and nothing to level up work that is low paid and insecure.

The experience of London shows that the prevalence of high-paid jobs does not automatically lead to rising incomes for the wider community. Indeed, London has the highest rate of in-work poverty in the country, with people in low-paying service sector jobs priced out of housing and local amenities.

To level up, we must tackle low pay and insecurity head on, and focus on those sectors that need it most.

We need to strengthen the floor of employment protection for all workers by raising the minimum wage and tackling zero hours contracts. And the government should lead by example, giving public sector workers a proper pay rise and reversing the devastating cuts that public services have suffered in the last decade. Decent jobs should be a requirement of all government procurement, so that the power of government is used to drive up employment standards.

But we also need to change the way our economy works to hardwire decent work into business models and economic growth. Relying on the private sector to level up without changing how it works will fail. We need corporate governance reform to rebalance corporate priorities and give working people a fair share of the wealth they create. And we need a new skills settlement to give working people access to lifelong learning accounts and a right to retrain.

Levelling up at work means addressing the imbalance of power in the workplace

Working people need stronger rights to organise collectively in unions and bargain with their employer. Collective bargaining promotes higher pay, better training, safer and more flexible workplaces and greater equality – exactly what we need to level up at work. Unions should have access to workplaces to tell people about the benefits of unions, following the New Zealand model.

And to level up we must tackle entrenched low pay and poor conditions within sectors head on, bringing unions and employers together to set sectoral Fair Pay Agreements for low paid sectors, starting with social care.

Creating new and better jobs is important; but this Levelling Up White Paper has left those in low paid, insecure work behind.

Families suffering from ‘fuel stress’ set to treble to six million households as energy bills soar

The number of households suffering from ‘fuel stress’ – spending at least 10 per cent of their family budgets on energy bills – is set to treble overnight to 6.3 million households when the new energy price cap comes into effect on April 1, according to new research published today by the Resolution Foundation.

The research shows that the proportion of English households in ‘fuel stress’ – a general indicator of finding energy bills unaffordable and also the definition of fuel poverty in Wales, Scotland and Northern Ireland – is currently 9 per cent.

It is expected to leap to 27 per cent as a result of the energy price cap rising by more than 50 per cent this April to around £2,000 per year. Ofgem will announce the new price cap level on February 7.

Levels of fuel stress are set to be highest in the North East and the West Midlands (33 and 32 per cent), among pensioner households (38 per cent), among those in local authority housing (35 per cent) and among those in poorly insulated homes (69 per cent of families in homes with an EPC F-rating).

The sheer scale of energy bill increases mean that fuel stress will no longer be confined to the poorest households, says the Foundation, but low- and middle-income families will find it hardest to cope as they spend a far greater share of their family budgets on these essentials.

The report notes that the Government is rightly considering ways to mitigate rising energy bills, and should target support at lower income households.

The Foundation says that the most effective way to support lower-income families is through the benefits system, with a faster-than-currently-planned uprating of benefits in April (benefits are set to rise by 3.1 per cent).

Alternatively, an additional payment based on the Warm Homes Discount (WHD) could be pursued. However, the policy will require major surgery in order to make it for purpose. The reforms should include making the WHD:

Bigger, by increasing the £140 payment by at least £300;
Broader, by widening eligibility to all families in receipt of pension credit or working age benefits (8.5 million families in total) and making payments automatic;
Timelier, the extra support should be delivered via an additional bill discount this spring, following the normal winter round; and,
Taxpayer funded, by funding the payments through general taxation (at a cost of £2.5 billion) rather than through further increases in everyone else’s energy bills.

A new vastly improved WHD would cut the number of households living in fuel stress by around five percentage points – equivalent to over one million families.

The report adds that the Government may also want to take action to cut everyone else’s energy bills too.

This could be achieved by spreading the costs of energy firm failure over a number of years (reducing bills by up to £65) and temporarily transferring the social and environmental levies needed to future-proof Britain’s energy supply from bills to general taxation.

This would cut everyone’s energy bills by around £245 and would cut the number of families in ‘fuel stress’ by over seven percentage points – or 1.7 million families – but at a cost of £4.8 billion.

In combination, this dual approach of providing support to all energy bill payers, alongside targeted support for those most at risk of falling into ‘fuel stress’ would reduce energy bills by up to £545 a year – at a cost of around £7.3 billion – and help to avert a cost of living catastrophe this year. The rise in fuel stress would be reduced by two thirds, with 2.7 million fewer families in fuel stress.

Finally, while short term measures are clearly needed, the medium- and long-term solution to energy price shocks is reform of our energy market, better insulating our homes, and reducing our dependence on natural gas via an accelerated move to heat pumps, and the rollout of renewable and nuclear electricity.

Jonny Marshall, Senior Economist at the Resolution Foundation, said: “Rising gas prices are causing energy bills to soar, and will see the number of families suffering from ‘fuel stress’ to treble to more than six million households this summer.

“Fuel stress levels are particularly high among pensioner households, and those in poorly insulated homes – a stark reminder of the need to modernise Britain’s leaky housing stock and curb national dependency on gas for power and heating.

“The Government can take action by targeting support at lower income households via benefits or a bigger and broader version of the Warm Homes Discount. They should also temporarily transfer the cost of environmental levies onto general taxation, as well as spreading the cost of supplier failure over three years.

“While not cheap at £7.3 billion, this plan is affordable, and by cutting bills by up to £545 would help prevent the upcoming rise in energy bills turning into a cost of living catastrophe for millions of families.”

2022 set to be ‘Year of the Squeeze’

2022 is set to the ‘year of the squeeze’, with real wages set to be no higher next Christmas than today, and families face a typical income hit of around £1,200 a year from April as a result of tax rises and soaring energy bills, according to new Resolution Foundation research published today.

The Foundation’s latest quarterly Labour Market Outlook looks ahead to how workers and families will be affected by the big economic shifts in 2022.

It notes that while Omicron is rightly at the forefront of people’s minds at present, it is unlikely to be the defining economic feature of next year as the wave is expected to be relatively short-lived.

Instead, 2022 will be defined as the ‘year of the squeeze’ for family budgets, with inflation set to peak at 6 per cent in Spring 2022 (its highest level since 1992) and pay packets stagnating as a result.

The report notes that real wage growth was flat in October, almost certainly started falling last month, and is unlikely to start growing again until the final quarter of 2022. As a result, real wages are on course to be just 0.1 per cent higher at the end of 2022 than at the start.

By the end of 2024, real wages are set to be £740 a year lower than had the UK’s (already sluggish) pre-pandemic pay growth continued. This shows just how much the Covid-19 crisis has scarred pay packets across Britain, says the Foundation.

The peak of the squeeze will come in April, says the report, which risks being a cost of living catastrophe as energy bills and taxes rise steeply overnight.

The cap on energy bills is expected to rise by around £500 a year. Coupled with a further £100 rise to recoup the costs associated with energy firm failures, this could mean a typical energy bill rising by around £600 a year.

This rise will fall disproportionately on low-income families as they spend far more of their income on energy. The share of income spent on energy bills among the poorest households is set to rise from 8.5 to 12 per cent – three times as high as the share spent by the richest households.

Higher-income families will instead by disproportionately affected by rising tax bills in April. The average combined impact of the freeze to income tax thresholds and the 1.25 per cent increase in personal National Insurance contributions is £600 per household. For families in the top half of the income distribution, the NI rise alone will raise tax bills by £750 on average.

The Foundation says the scale of this April cost of living catastrophe, at a time of falling real wages, means the government is likely to have to act.

While there is little the Chancellor can do in the short-term to tame inflation or boost wage growth, the welcome 6.6 per cent rise in the National Living Wage next April should protect the lowest earners from shrinking pay packets.

The top priority for further action should be tackling rising energy bills, says the Foundation. Options for doing so include:

Reducing the size of the energy cap rise directly. Compensating energy suppliers for a six month, £200 reduction would cost around £2.7 billion, or £450 million if focused on lower-income households on Universal Credit.
Extending the time period over which the costs of supplier failures are recouped, with the £100 bill rise reflecting a policy of recouping costs over a single year.
Moving environmental and social levies currently added to electricity bills into general taxation, saving households £160 per year and costing up £4.5 billion per year.
Extending and increasing the Warm Homes Discount.

Torsten Bell, Chief Executive of the Resolution Foundation, said: “2022 will begin with Omicron at the forefront of everyone’s minds. But while the economic impact of this new wave is uncertain, it should at least be short-lived. Instead, 2022 will be defined as the ‘year of the squeeze’.

“The overall picture is likely to be one of prices surging and pay packets stagnating. In fact, real wages have already started falling, and are set to go into next Christmas barely higher than they are now.

“The peak of the squeeze will be in April, as families face a £1,200 income hit from soaring energy bills and tax rises. So large is this overnight cost of living catastrophe that it’s hard to see how the Government avoids stepping in.

“Top of the Government’s New Year resolutions should be addressing April’s energy bills hike, particularly for the poorest households who will be hardest hit by rising gas and electricity bills.”