Lump-sum cost-of-living payments not targeted at those in greatest need – IFS

13 July 2023, 00:04 | Updated: 14 July 2023, 09:18

Models of people on coins
Cost-of-living payments. Picture: PA

The payments have helped alleviate significant deprivation but their effectiveness in poverty reduction has been limited, the IFS argued.

Uprating benefits would have been preferable to sending out a string of lump-sum cost-of-living payments to households, according to the Institute for Fiscal Studies (IFS).

The economics research institute argued that the “sticking-plaster solution” has been expensive and ineffective.

The Government has introduced a series of cost-of-living payments, to help households cope with the shocks to their income from surging prices.

The largest of these are five instalments totalling £1,550 for households on means-tested benefits. There are additional payments to people on disability benefits and pensioners.

The total cost of these is nearly £19 billion over two years, the IFS said.

The research, funded by the Joseph Rowntree Foundation (JRF), indicated that the occasional, lump-sum nature of the payments created additional difficulties.

Researchers argued that it would have been preferable simply to increase benefit levels.

Their document said: “Benefits are uprated each April using a lagged measure of inflation from the previous September.

“This leads to temporary, but large, falls in the real value of benefits when inflation is rising quickly.”

Researchers looked at an instalment of the payments in July 2022.

They pointed to indications that a payment of £326 in July 2022 boosted spending, indicating that people may have been experiencing hardship while they waited for the payment to arrive.

The IFS argued that large one-off payments, rather than smaller regular payments, are less useful for long-term budgeting.

Sam Ray-Chaudhuri, a research economist at IFS and an author of the report, said: “The cost-of-living payments supported low-income households’ spending in the face of rising prices, and no doubt have helped alleviate significant deprivation.

“But, by giving the same amount to all households on benefits regardless of their circumstances, the payments were not targeted at those in the greatest need, limiting their effectiveness in poverty reduction.

“The Government spent £8.3 billion on lump-sum payments in 2022-23 and will spend an estimated £10.5 billion in 2023-24 – a better-targeted policy could have offered higher amounts of support to those in greatest need, with no additional cost to the taxpayer.”

JRF chief analyst Peter Matejic said: “This research shows that policymakers ignored the obvious answer to the cost-of-living crisis facing low-income households of increasing benefit levels in favour of a solution that didn’t focus on helping the families left agonising about how they would afford to feed and clothe their children.”

He added: “The sure-fire way to make sure the people most at risk of poverty aren’t left in jeopardy in the wake of economic shocks is to adopt the ‘essentials guarantee’, which would mean the basic rate of universal credit at least covers the cost of life’s essentials, with support never being pulled below that level.”

A Government spokesperson said: “Our cost-of-living payments are delivering quick and much-needed support directly into the pockets of millions of low-income households, with extra help for pensioners and disabled people.

“We’re also helping the most vulnerable by increasing benefits in line with inflation while our changes to universal credit mean people keep more of their hard-earned money.

“Separately we’re investing £3.5 billion in our drive to grow the economy and get more people into work – which always pays more.”

By Press Association