National Insurance gains to be dwarfed by income losses if benefits uprated with wages

• Lower-paid jobs – nursery assistants, street cleaners, van drivers – gain less from the NI cut so will see a bigger cumulative loss to income if benefits increase with earnings instead of inflation
• A family with two kids earning less than £24,700 will lose out by over £600 if benefits increase by earnings instead of inflation – even after taking into account the NI cut.

New analysis reveals the scale of income cuts facing workers in different jobs if benefits are uprated by wages rather than last month’s inflation rate. The rate will be confirmed by the Office for National Statistics later today.

If benefits increase by earnings (5.5%) instead of last month’s inflation rate (expected to be 10.1%), a low-earning couple with two kids stands to lose £752 in 2023/24. Only a fraction of this will be offset by lowering National Insurance (NI) – one element of September’s mini-budget that remains – research from Child Poverty Action Group and Action for Children reveals. As parents in the lowest-paid jobs gain the least from NI cuts they therefore see the biggest cumulative loss.

The Government has so far refused to confirm that it will honour the previous Government’s commitment to uprate benefits to match inflation. But the analysis shows that a hospital porter working full time to support a partner and two young children gains only £114 from national insurance changes, but will lose £752 if benefits increase by earnings instead of inflation, leaving the family £637 worse off.

A hairdresser in the same situation gains just £35 from NI changes, but will lose £752 if uprating is linked to wages – leaving the family £716 worse off.

The losses to social security vary by family type. The more needs the family has, the more social security they stand to lose. A working couple with two children where one partner is caring for their disabled child will lose over £1,000 if benefits are uprated by earnings instead of inflation.

These losses risk being baked-in to future years – even if government returns to uprating with inflation in future years, a couple with two children will continue to be £752 worse off in cash terms in each subsequent year if benefits don’t increase with inflation this year. The only way to compensate for this would be if a future government raised benefits at a rate higher than inflation.

Chief Executive of Child Poverty Action Group Alison Garnham said:

The UK is already trapped in a child poverty crisis – and many more families will be pushed to the brink of survival without support. The bare minimum government can do is to confirm it will raise benefits in line with inflation. With so much uncertainty and fear, families are terrified, and it’s unthinkable that children will be forced to bear the brunt of the government’s economic mistakes.

Director of policy and campaigns at Action for Children, Imran Hussain, said:

Protecting children from hunger and harm is not an eye-wateringly hard decision. A cut in the true value of benefits would cause immense long-term damage to so many of the low-income parents and children we support who are already struggling to survive on the breadline.

The Chancellor has rightly said that economic stability is his most important objective – but that cannot come at the expense of the poorest. It's critical the government keeps its previous promise to uprate benefits with inflation so those on the lowest incomes can afford to feed their children and heat their homes.

Impact of current government policies on working family’s income, by profession

Note: The data is for a couple with two children (aged 6 and 2). One member of the couple works full-time. They live in rented housing. Earnings refer to median earnings from Figure 11: Annual full-time gross pay by occupation UK, April 2021, Employee earnings in the UK: 2021, ONS, 2022. The gain from tax and NI changes reflects how much more families have with an NI rate of 12% instead of 13.25%. The loss in social security comes from child benefit and universal credit non-housing elements being uprated by earnings (5.5%) instead of inflation (10.1%).

Loss to income if benefits increase by earnings instead of inflation, by family type

Note: The loss in social security comes from child benefit and universal credit non-housing elements being uprated by earnings (5.5%) instead of inflation (10.1%).

Note to editor:

Media contact: Jane Ahrends, CPAG

07816 909302

0207 812 5216