The dimunition of welfare benefits under the Coalition – my work for CPAG
A couple of months ago I did some freelance work for the Child Poverty Action Group (CPAG) on the changing real value of various welfare benefits under the Coalition. They published my original briefing on their website, but supplemented it with their own briefing based on my work, and a press release.
In this post, I just want to give a bit more information on this work, and draw people’s attention to some interesting repositories of information which weren’t contained in the CPAG briefing that was published.
Everything you need to know about “welfare benefits uprating” (and a bit more besides)
Year-on-year, the value of various welfare benefits is increased to keep pace with inflation, and so retain its real value. This has been the case since about the 1970s. Prior to this period, there was no rigorous uprating policy and benefits were uprated haphazardly. When inflation started to become a problem in later decades, parties of all hues opted to adopt a more consistent policy.
On the face if it, this process should be really simple. In practice, it raises a multitude of technical and rather boring questions. For instance:
On what measure of inflation do you up-rate benefits? You’ve got your good old traditional Retail Prices Index (RPI) and your less generous but more respected Consumer Prices Inded (CPI). For the most part welfare benefits have been uprated by neither. Instead, a special index – Rossi, and more recently New Rossi – was created to exclude housing costs (which are, after all, accounted for in another benefit).
When, and how often, do you up-rate welfare benefits? This isn’t a trivial question. Benefit rates are likely to become out-dated as soon as they’re uprated ans ideally you’d want a more regular uprating system. In practice this hasn’t happened, and people have been stuck with rates set for an entire year. The uprating month used to be November, but since about 1987 it’s been linked to the financial year, and has gone up in April.
Which month’s inflation figures do you use? The most up-to-date upratings system would use April’s rates, but there are practical issues in getting figures ready for then. In practice, since 1988, we’ve uprated based on inflation figures in the 12 months up to the previous September.
I’ve produced an Excel spreadsheet which goes into more detail than is necessary or healthy on all these various changes in benefits uprating policy, going all the way back to 1979.
Coalition Changes to Uprating Policy
The best way to screw people over is to do it in such a way that they might not even notice. Seen from this purely political perspective, the Coalition’s changes to welfare benefits over the past five years have been ingenious. So often, even those in receipt of these benefits have confused an absolute percentage increase year-on-year with a real terms increase.
For all benefits, inflation uprating is now done on the basis of the less generous CPI. But to save more money, a select raft of working-age benefits – from JSA to Child Benefit and Employment and Support Allowance – have been subject to a 1% cap or (in the case of Child Benefit) an absolute freeze in their value over two years.
At the same time, pensioner benefits have actually been treated more generously. A “triple lock” has been put in place, and they are uprated by the highest of CPI, earnings or 2.5% a year. Thursday’s depressing General Election result perhaps testifies to the success of this bifurcated policy.
My work with CPAG was about showing how the real value of these various benefits has compared with inflation, and how it has fallen over the past five years.
CPAG’s idea is pretty basic and the work is notionally simple, but the challenge arises in finding the sources to do this and adopting a methodology which allows for consistent comparison.
Every year, the DWP publishes an Annual Abstract of Statistics which shows the actual numerical value, and the real value, of various welfare benefits, going all the way back to the immediate post-war period. So you’d think it’d just be a case of taking these figures and producing a graph with them.
Not so. Considering what I’ve just told you about Coalition changes to uprating, you might – like I was at the time – be dumbstruck to glance at the Abstract’s figures on the “real” value of welfare benefits, which can be found in the various tables of this document. They seem to suggest welfare benefits holding pretty steady against the rates they were at under Labour.
The reason – whilst initially elusive – is actually quite simple. The DWP abstract measures the real value of the benefits based on two measures: (a) inflation at the date of uprating (April), and (b) inflation over the previous year (April-April). This is despite the fact that, as I said previously, the benefits themselves are uprated based on inflation in the 12 months up to the previous September.
Civil servants may have quite a laudable aim in adopting this methodology. After all, this is arguably a more accurate measure of the inflation which recipients are actually experiencing. The actual effect, though, is that published figures disguise the actual effect of changes to Government policy.
My CPAG work addresses this by compiling two comparable indexes. One for the benefit rates, with the index going up every April, and one for inflation, with an index going up every September. For all benefits save for ESA, 1992 = 100 on the index of inflation and benefits. For ESA, 2008 = 100.
This allows for a more accurate assessment of the actual impact of Government policy, without all the “noise” that comes with the approach adopted by the DWP. Do read the CPAG files for more information on what exactly these changes show, and also look at the graphs in my gallery.
CPAG ultimately agreed with this methodology and they present graphs using the index I describe above. We differ, though, on a few key issues:
(1) I think you should use New Rossi in the index, , and not RPI, where this is appropriate (i.e. where previous Governments used this policy). They disagreed as they felt that RPI was a better measure of the real value of these benefits, quite apart from what any incumbent Government thought this “real” value was. The different outcomes of these methods can be found in the final tab of the spreadsheet I mentioned previously. Adopting CPAG’s methodology under-states the magnitude of changes under the Coalition because it shows real values failing to keep pace with RPI inflation under New Labour too. This is unfortunate, but then I would say that wouldn’t I?
(2) They were keen to measure the real value of benefits against specific items in the RPI basket of goods. I err caution here. This is because any changes in the relative value of items within the RPI basket doesn’t, on its own, mean that people are getting less welfare support. Really it just reflects reductions in the real value of other items in the RPI basket to off-set these increases or, alternatively, changes in the weighting applied to these goods within the RPI basket. I’m not against graphically representing these changes in principle because it is interesting to see just how much items like transport have increased relative to welfare benefits, but it shouldn’t be interpreted as meaning that benefit uprating policy hasn’t kept pace with this.
So the charts in the gallery on this website reflect the methodology I preferred: their real value is set against New Rossi where appropriate, and it shows the rates holding steady with inflation until the Coalition come to power. I don’t use the graphs for individual items.
These subtle, gradual changes do not bode well for inter-generational justice and the future of working-age welfare, and I fear for what further changes the majority Tory Government has in stall for these benefits in the years to come. Sadly, it’s not immediately clear to me how Labour can respond to this. The left hasn’t quite sussed out a popular retort to this concerted attack. For now, all talk is of shirkers and scroungers.