UK cost of living payments were ineffective sticking plaster, IFS says | UK cost of living crisis

Billions of pounds of taxpayer cash spent on one-off cost of living support has proved an expensive and ineffective “sticking plaster” that would have been better used to raise the value of benefits, the Institute for Fiscal Studies has said.

Britain’s foremost economics thinktank said the government’s cost of living payments scheme, introduced by Rishi Sunak while he was chancellor, had cost the exchequer almost £19bn over two years.

The series of payments was “poorly designed to alleviate deprivation”, it said, and created additional difficulties for many poorer households because of its occasional, lump-sum nature.

The IFS said it would have been “preferable simply to increase benefit levels” to ensure the payments made through the welfare system matched rising inflation.

It said the government’s preferred method was a “sticking-plaster solution [that] has proved expensive and ineffective by comparison”.

Cost of living payments were introduced as part of a package of one-off support measures announced by Sunak in May 2022, and Jeremy Hunt announced a further set last November.

The largest of the payments are five instalments totalling £1,550 for households on means-tested benefits, going to at least 7 million households.

According to the IFS report, funded by the Joseph Rowntree Foundation poverty charity, the payments helped to enable higher spending for low-income families but were not adequately targeted to help those most in need.

Highlighting the impact of the stop-start nature of the payments, it found that in the month after receiving the support in June 2020, recipients’ total spending was on average £130 higher than the month before. Spending then fell sharply after that rise.

The IFS said this suggested many households had constrained their spending in the weeks leading up to a payment, with many likely to have experienced hardship, and that large one-off payments made it harder to budget than smaller regular ones.

Sunak introduced, and later cut, a £20-a-week rise in the value of benefits during the Covid pandemic. He then ignored calls last April to raise benefits by more than 3.1% for the 2022-23 financial year, despite inflation running at more than double that amount at the time.

Sunak argued last year that outdated Department for Work and Pensions computer systems had prevented him from raising benefits by more. He said raising benefits would add to government borrowing, potentially stoking inflation.

Benefits are increased each April in line with inflation from the previous September. While this meant a large real-terms cut in the spring of 2022 as inflation rose sharply, the government increased the value in April 2023 by 10.1% as inflation fell slowly towards the current level of 8.7%.

The IFS said this was still not sufficient to cover the scale of the inflation shock hitting households, with real benefit entitlements for out-of-work families still 10% below pre-Covid levels. It forecasts they will not return to pre-pandemic levels until April 2025.

Peter Matejic, the chief analyst at the Joseph Rowntree Foundation, 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.”

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.”