Poorest families would lose ?400 a year under Liz Truss benefits plan

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Low-income households will be almost ?400 a year worse off under No 10’s plans to increase benefits at a lower rate than inflation, new analysis for the Observer has revealed.

Liz Truss and her government are considering uprating welfare in line with earnings rather than inflation. It would mean increasing them by 5.5% rather than about 10%, according to the most recent official data, saving about ?5bn.

The move would effectively leave poorer households ?395 a year worse off on average. According to estimates by the Policy in Practice consultancy, households will be ?32.91 a month worse off. Uprating by just 5.5% will result in a 7.7% loss in disposable income on average, as prices for energy and housing continue to rise.

The cut is even larger for some groups. In-work households lose out by ?458. Couples with children are ?640 worse off. Deven Ghelani, the director of Policy in Practice who worked on universal credit from its creation, said: “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.”

No decision has yet been taken by ministers, but with Truss and chancellor Kwasi Kwarteng facing pressure to bring spending under control after their tax-cutting mini-budget, welfare is seen as an area where savings can be made. Opposition is already growing among Tory MPs over the idea of not increasing benefits in line with inflation, as previous chancellor Rishi Sunak had promised to do.

Disability benefits are likely to be increased in full, with universal credit the area that ministers will probably look at to make savings. However, there are also reports that the Treasury is searching for savings far greater than the ?5bn it could secure by uprating welfare in line with wages.

According to ITV News, measures being considered include bringing forward rises in the state pension age, means testing benefits that are universal, or cutting housing benefit. The Treasury has dismissed as speculation any discussion of measures linked to November’s fiscal plan.