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Wed, 30 September 2020

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Benefit cuts 'will leave poor families at greatest risk' in the event of another financial crash

Benefit cuts 'will leave poor families at greatest risk' in the event of another financial crash

Emilio Casalicchio

2 min read

Planned benefit cuts mean poor families with children will probably be the hardest hit if the UK is crippled by another recession, according to new research.


If there was a similar crash to the one that began in 2008, the poorest 30% of households would get less protection from the welfare system after the cuts, the Institute for Fiscal Studies said.

Before the cuts they would lose 39p ​- once the welfare buffer kicks in - for every pound wiped off their salary, but after the cuts they would lose 53p in every pound.

Some working households would no longer be eligible for extra benefits under the new regime, the IFS added in a new report funded by the Nuffield Foundation.

Government analysts at the Office for Budget Responsibility have warned there is a 50% chance of a recession in any five year period.

Meanwhile, ministers are pushing ahead with a freeze in most working-age benefits, cuts to child tax credit and a less generous system of Universal Credit.

Andrew Hood, a top researcher at the IFS, said Governments must “consider the impact” of changes to the welfare system against the possibility of another downturn.

“Planned cuts to working-age benefits will leave low-income households with children in particular more exposed to any future downturn in the labour market, by reducing the extent to which earnings losses would be offset by increased entitlement to benefits,” he explained.

“This is particularly important since many in this group have little or no savings which they can draw on during a period of temporary difficulty.”

The IFS added that in-work benefits protected low-income households during the previous crash and were a key factor in the fall in inequality between 2008 and 2012. 

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