Committee takes evidence on the cost of living crisis

The Work and Pensions Committee first took evidence on the cost of living crisis in February 2022, when inflation was forecast to peak at 7.25% in April 2022¹. By the time the committee published its report on 27 July 2022, it said inflation looked set to top 11% in October, the highest in 40 years¹. The report is a House of Commons committee report with recommendations to government, and the Government has two months to respond¹.

The committee said the Government had announced a collection of measures to help households with the rising cost of living, initially in February and March and supplemented in May with a more substantial package¹. It described these interventions as broadly welcomed, particularly for combining universal support with targeted payments delivered through the benefits system and for including those on legacy benefits¹. It also said much of the package was made up of one-off payments, which the Government described as emergency measures that would not become ongoing or regular payments¹.

On the uprating of benefits, the committee said the April 2022 rise, when inflation was already 9%, was based on the CPI rate from September 2021, which was 3.1%, causing a real-terms fall in income¹. It said the reasons given by the Government for this seven-month gap were similar to those heard during the pandemic: legacy IT systems require manual inputting, meaning changes take months to implement¹. It added that it was unfortunate this was not referred to in the Government's response to calls for social security support to be uprated in line with inflation estimates when The Social Security Benefits Up-rating Order 2022 was debated in February 2022¹.

The report also covered housing support, the benefit cap, deductions and Pension Credit. It said the level of Local Housing Allowance had been frozen in cash terms since 2020, when the Government reset its value to the 30th percentile¹. It said the benefit cap had remained frozen at the same level since it was lowered in 2016 and had not been reviewed by the Secretary of State, despite the statutory requirement to do so every five years¹. On deductions, it said repayments to the DWP are not subject to the same affordability assessments expected in consumer credit markets, and that many families cannot afford deductions from social security payments that are already behind inflation¹. It heard that repaying advances, particularly from the five-week wait, left many people struggling when they moved onto Universal Credit, and that deductions for overpayments were often unclear and unexpected, some coming years after they were accrued¹.

On Pension Credit, the committee said many people who need it do not claim it, and that awareness raising can have limited impact unless it is targeted and sustained¹.

The committee also cited 2019 figures from the Resolution Foundation that social security spending will be around £34 billion lower in 2023-24 than it would have been if the 2010 social security system had remained in place, and said the UK's social security support as a percentage of GDP is below EU-27 and OECD averages¹.

Why it matters for households

The report sets out how the timing of benefit uprating affects household incomes. Because the April 2022 rise used the CPI rate from September 2021 of 3.1% while inflation was already 9% at that point, claimants saw a real-terms fall in income¹. The committee said the gap between the inflation reference point and uprating should be closed¹.

For people renting privately on low incomes, the report notes Local Housing Allowance has been frozen in cash terms since 2020¹. For households affected by the benefit cap, the level has been unchanged since it was lowered in 2016, and the committee said the cap mainly affects larger families¹. On Universal Credit, deductions for advances and overpayments reduce payments that are already behind inflation, and the committee said repayments to the DWP are not subject to the same affordability assessments expected in consumer credit markets¹.

The report also notes that Pension Credit is underclaimed, and that it is increasingly an important way of ensuring older people have the support they need during the crisis¹. The background to price rises since 2021 is set out in our guide to the cost of living crisis, and the wider picture on pay is covered in real wages and in the difference between the National Living Wage and the real Living Wage.

What happens next

The Government has two months to respond to the report¹. The committee recommended that the Department for Work and Pensions work with stakeholders to develop an evidence-based take-up strategy for Pension Credit by the end of 2022, setting out actions to deliver it over the next five years, with an annual update to the select committee¹. It also recommended that the benefit cap be reviewed urgently and uprated accordingly¹, and that deductions be paused and restored gradually as inflation reduces, or when benefits have been uprated to reflect the current rate of inflation¹.