Six key points from 'The Austerity Generation: the impact of a decade of cuts on families with children'

Today, CPAG publishes a major new study on the impact of austerity on families with children: ‘The Austerity Generation: the impact of a decade of cuts on family incomes and child poverty‘.

Based on modelling by the Institute for Public Policy Research, it’s an in-depth look at the cuts to tax credits and universal credit in the 2010-2020 decade, and the impact of these cuts on incomes, poverty rates and work incentives.

Here are the key points:

1. The promise of greater rewards from work under universal credit - its organising idea - has been broken.

Universal credit (like tax credits) has been mercilessly cut by the Treasury. The universal credit system we have today isn’t the same as the one that was sold to us.

Working families in the UK stand to lose £930 a year on average from cuts in the tax credit system and £420 a year from cuts to universal credit – these are losses across the population, so the losses for tax credit and universal credit recipients would be much higher.

2. David Cameron’s single mother is a good example of how badly universal credit is failing

In 2009, in his last party conference speech before being elected as Prime Minister, David Cameron had an angry riff on tax credits leaving a single mother with two children, earning £150 a week, facing an effective tax rate of 96p (factoring in the withdrawal of benefit and additional taxes) if she worked another hour. You can watch the short clip here: https://twitter.com/imran_1/status/926381637511843840

Our new report includes a lone parent with children as a model family. Earning £150 a week means working about 18.5 hours. Although universal credit reduces the effective tax rate to 74 per cent, this lone parent and her children would be £2,336 a year worse off (see box 4.2 and figure 4.10 of the report). In other words, like many others on universal credit, this family’s finances have been thrown down a deep hole with only a very short ladder thrown in to get them out of it.

3. It is almost impossible for many to make up these losses by working more hours

Freezes and cuts to universal credit work allowances will leave lone parents worse off by, on average, £710 a year, couples £250 a year (again, losses here are across the whole population – they’ll be much higher for those affected).

In order to make up the losses caused by the cut in work allowances in universal credit, for example, a full-time working couple on the so-called ‘national living wage’ would have to work 17 extra days a year.

A lone parent already working full time for the ‘national living wage’ would have to work 41 extra days a year to recoup their loss – equivalent to a fourteen month year. In any case, working extra days will depend on family responsibilities and whether it’s actually possible to increase your hours at work.

4. Families already at greater risk of poverty will lose most

The poorest 10 per cent will lose 10 per cent of their income (£450 a year) on average compared with what was promised by universal credit.

For larger families, cuts to universal credit mean the average family with three children will be 10 per cent (£2,540 a year) worse off, and the average family with four or more children 19 per cent (£5,000 a year) worse off due to universal credit cuts.

Cuts to universal credit mean families containing someone with a disability will be £300 a year worse off; families containing someone with a severe disability will be £530 a year worse off.

5. We’re creating an austerity generation

Since 2010, rather than investing in our children, government policy has been creating an Austerity Generation whose childhoods and life chances will be scarred by a decade of political decisions to stop protecting their living standards.

A major study by the LSE found poorer children have worse cognitive, social-behavioural and health outcomes because they are poor, and not just because poverty is correlated with other household and parental characteristics.

Our study today estimates that the cuts to universal credit would put 1,000,000 children in poverty and 900,000 in severe poverty by the end of the decade (assuming it was fully rolled-out by then).

6. Universal credit needs a full-scale rescue mission

This month’s Budget is an opportunity for the Chancellor to mount a full-scale rescue mission for universal credit. CPAG was the first to sound the alarm about the 6 week wait for universal credit, so progress on that would be very welcome, but this report makes it clear that the problems are more fundamental - the whole point of universal credit is being undermined.

The Chancellor should use this month’s Budget to:

  • Restore work allowances - the income level at which universal credit starts to be withdrawn. This would benefit all working families by an average of £150 a year – so those on universal credit would benefit by much more than this figure.
  • Triple-lock child benefit and the child element of universal credit: this would be the single most effective intervention to reduce child poverty (it would reduce numbers by 600,000).