Coronavirus: Millions of poorest families to lose £20 a week as Rishi Sunak fails to extend support

Six million of the UK’s poorest households could suffer a £20-a-week hit to their income as a result of yesterday’s winter economy plan by chancellor Rishi Sunak.

As he set out plans for an estimated £5bn support for jobs and businesses, Mr Sunak made clear that he was not extending a temporary boost to universal credit payments introduced for the coronavirus crisis and due to end in March.

As a result, families dependent on benefits – and those who lose their jobs in an expected wave of redundancies as the chancellor’s furlough scheme ends in November – could face a loss of income of around £1,000 a year.

The move comes despite the chancellor telling MPs that it was now clear that the impact of Covid-19, which had been expected to be temporary when the welfare boost was implemented, will result in a “permanent adjustment” to the UK economy.

And it comes at a time when ministers are acting to ensure that heavily Conservative-backing pensioners do not lose out from the crisis, by legislating to ensure them an inflation-busting rise in the state pension.

Legislation introduced on Wednesday will override rules which prevent pension hikes at a time when wages are falling, allowing ministers to deliver a 2.5 per cent increase for the elderly in April under the “triple lock” arrangement.

The Resolution Foundation think tank said the chancellor’s decisions would inflict a “major living standards squeeze” on the worst-off this winter, at a time when unemployment could be at its highest level in a generation.

“Those flowing onto universal credit will not only see much larger hits to their incomes, but the chancellor yesterday missed the opportunity to avoid a further shock by extending the temporary boost to universal credit beyond March,” said the think tank.

And Louisa McGeehan, director of policy at the Child Poverty Action Group, said: “The £20 increase in universal credit has been a lifeline to many families during the pandemic. It will continue to be needed well beyond next spring given the bleak economic outlook. 

"To remove this increase in UC would lead to 350,000 more children growing up in poverty. The children of the pandemic deserve more given how much they have lost in education and other opportunities.”

Mr Sunak was urged by SNP employment spokesman Neil Gray to make the uplift permanent.

But he responded: “The temporary increase in universal credit lasts all the way through to the end of March next year already and for those who are most vulnerable, as I previously said, we’ve provided significant enhanced support through the welfare system.

“As our analysis showed in the summer, the interventions that this Conservative government has made over the past several months have made the most difference to those on the lowest incomes.”

Foundation director Torsten Bell also challenged the design of the chancellor’s job support scheme, which will replace furlough arrangements from November, providing state support only for workers able to do a third or more of their normal hours.

The scheme requires employers to pay one-third of wages for unworked hours by staff on short-time, with the state picking up the bill for another third and the employee losing the rest. It means that overall employers will pay at least 55 per cent of wages for staff working as little as 33 per cent of their normal hours.

But Mr Bell said that this would often make it more cost-effective for firms to keep on one full-time worker rather than two on short-time arrangements.

Resolution Foundation analysis found that it would cost a firm £1,500 to employ one full-time worker on £17,000, but over £2,000 a month to employ two half-time workers on the same full-time equivalent salary. One full-time worker on £10,000 would cost £800 a month, compared to £1,100 a month for two half-time workers.

A similar scheme in Germany has “a track record of encouraging firms to cut hours rather than jobs” because it does not require employers to pay wages for hours when staff are not working, the think tank said.

But the Treasury said that the Foundation’s analysis did not reflect the real world, in which most businesses would prefer to keep staff on because of the value of their skills, experience and attachment to their company.

Mr Bell said: “While the chancellor has rightly aimed to create a European-style short-hours working scheme, design flaws mean that the new job support scheme will not live up to its promise to significantly reduce the rise in unemployment. Those mistakes could be addressed by scrapping the poorly targeted £7.5bn job retention bonus, and using those funds to ensure the new support scheme gives firms the right incentives to cut hours rather than jobs.

The Foundation estimated that the job support scheme could cost £4.2bn over six months if three million workers take advantage of it while working half their usual hours.