Cost of living crisis: Critiquing the measures to maximise income

In the recent Queen’s Speech the government announced that its priority is to help ease the cost of living crisis for families yet it offered no new practical support. The measures to maximise income previously introduced leave many families without enough to meet their essential costs. This raises the question of whether or not the social security net is meeting needs. Tylor-Maria Johnson writes a three part series looking at Universal Credit and how its impact is limited by a combination of policy features and austerity measures that expose many households to significant financial challenges.

Cost of living crisis highlights benefits confusion

Over the past two month’s LBC London has done a great job covering the cost of living crisis. During two recent episodes, Director of Policy in Practice, Deven Ghelani, joined Shelagh Fogarty on LBC to answer live questions from listeners about the support households were entitled to during the crisis. As Deven said:

“We’re seeing people go from keeping their heads just above water to now all of a sudden realising that they need to take action.”

Many may not know what support is available, or how to claim it.

One caller, a mature student, was looking for ways to get support and apply for benefits. She wondered whether there was any financial support for full time, mature students. “ checked the calculators and didn’t seem to come under any of the categories to receive a benefit.”

Another caller had a bicycle accident and broke his hip before Christmas, making him unable to work. He said that he was ineligible for Universal Credit because the person he was living with had been earning too much. He did not know what to do to get support to meet his needs.

Another man recently migrated to Universal Credit and started receiving a Council Tax bill after having his council tax reduced for years prior. He called to ask what support he was entitled to.

Although each of the caller’s situations is unique to their circumstances, these queries about benefit entitlement will resonate with many. In addition, the general confusion about the rights to benefits strongly suggests the need to raise more awareness about the support and social tariffs available.

We must not be numb to the fact that over £15 billion in benefits goes unclaimed each year. Such low take-up rates of benefits indicate that there are barriers to claiming this much-needed support. Reasons for this include a lack of awareness of schemes, onerous application processes or social stigmas around receiving benefits.

There continues to be a real need to raise awareness about what’s available and to help people as they make their applications. Our benefits and budgeting calculator is one tool that households can use to check their eligibility and make the relevant applications.

More importantly, the fact that all callers struggle to find support despite having real financial need suggests some level of dysfunctionality within the existing social security system.

At first glance, there seem to be several pockets of support for households facing the cost of living crisis. However, when eligibility rules, stipulations and deadlines are factored in, many households are left without enough income to meet their priority costs.

In this post, I consolidate the support options available to households whilst also highlighting how different eligibility rules leave many households without enough money to meet their needs. Although emergency ad hoc measures have provided some relief for households, there is still much more that can be done to help households stay afloat during the cost of living crisis.

Measures to maximise income announced

Households are facing many financial challenges due to the rise in living costs, inflation, and energy bills.

• The energy price cap has been raised from £1277 to £1971 per year, increasing the average household’s energy bills by £693
• National Insurance has risen by 1.25% and inflation hit 7% in April
• Petrol prices and rents are expected to increase for most UK households
• We estimated that prices (28.8%) are increasing faster than both wages (25.9%) and benefits (14.2%) over the last decade making us all worse off

At the end of 2021, a reduction in the taper rate from 63% to 55% has been introduced, costing £2.2bn and benefiting 2.3m households on UC in work. Then in 2022, the government announced a number of support measures. To date the measures include:

1. A £200 discount on energy bills for domestic electricity customers to be repaid in instalments over five years
2. A £150 non-repayable Council Tax rebate for CT bands A-D
3. £144million discretionary support for those ineligible for CT rebates
4. Expansion of the Warm Homes Discount to an estimated 3million households to receive a £150 rebate
5. Winter Fuel payments of £200 to households with a state pension aged person, and of £300 for households with someone 80 or over
6. Households installing energy-saving materials pay 0% VAT for the next five years
7. An additional increase of £500 million to the Household Support Fund from April 2022. HSF will be distributed by Local authorities to households needing support in meeting essential costs
8. The National Insurance threshold increased to £12,570 from July 2022. Raising the threshold is expected to benefit 30million working people with an estimated saving of £330 a year
9. A 12 month fuel duty cut of 5p per litre

Difficulties with the measures to maximise income

There are a number of areas of support for households facing the cost of living crisis, but when eligibility rules and stipulations are factored in, many households’ income will not meet their priority costs.

The Council Tax Rebate process may prevent households from receiving this much-needed support. For instance, households who do not pay CT by direct debit will have to make a new claim to receive the rebate. This extra administrative step may create a barrier to the take-up of this support. Our data shows that the proportion of UC households claiming CTS by London borough is roughly 25%. Over 100,000 Londoners are missing out on an average of £1,000 per year by not claiming CTS.

Policy in Practice’s analysis of take up of council tax support by UC claimants in 14 London Boroughs shows it varies from 14% to just 35%

There is £144 million allocated for discretionary funding, and a £500 million expansion of the Household Support Fund was announced in the Spring Budget. This money can be used by councils to help other households in need.

However, reliance on discretionary support alone to meet the needs of low-income households can pose accessibility challenges. These schemes may not be known to eligible households. This also can put more strain on local authorities, already stretched to target and administer these funds.

Similarly, other ad hoc schemes like the Warm Homes Discount, and the Winter Fuel Payments may be inaccessible for households due to eligibility requirements. Households are only eligible for a Warm Homes Discount (WHD) if they have the guarantee credit element of Pension Credit, or a low-income, and meet their supplier’s criteria for the scheme. Although this seems like a solid measure, making eligibility contingent upon receipt of pension credit might contribute to the low uptake of this support.

The government’s own data highlights that Pension Credit is historically underclaimed. Over 1 million pensioners are entitled but not claiming the benefit. On average these households are missing out on about £1,700 per year of additional income.

A similar critique might be made for the Winter Fuel Payments. Householders are only eligible for the Winter Fuel Payment if they were born on or before 26 September 1955, and receive state pension and either a Housing Benefit, Council Tax Relief, child benefit, or UC. Since many eligible households are not taking up Pension Credit, they too may miss out on these crucial areas of support.

Applying for a Warm Home Discount may be complex for many households as WHD schemes vary between service providers. So not only must they be aware that the discount exists, but they must have knowledge about the application process for their specific provider. This might create friction on the journey to claiming these benefits and might contribute to the low uptake of this support.

A number of support measures exist for homeowners and those that own cars.

Households on Universal Credit or legacy benefits with a mortgage can receive mortgage interest support. This will provide support for up to £200,000 of loans, or £100,000 on Pension Credit or another qualifying benefit received prior to January 2009. Similarly, mortgage rescue schemes are available in Scotland and Wales in various forms. There is also a fuel duty that can help many car owners save money when filling up their tanks.

While these measures can be helpful to maximise income for these groups, they may not yield substantial savings on outgoing costs for households with the lowest incomes, since they are most likely not to own cars or be homeowners. Likewise, the increase in the National Insurance threshold may not impact those out of work or on the lowest incomes.

Altogether, we have estimated that the new support measures are worth about £350 per household. But compared to energy costs, this still leaves a deficit of £343 per average household for energy costs. It is very clear these measures are not enough to help families endure this cost of living squeeze.

Outside of government support, there are other social tariffs that households might consider applying to if they are looking for alternative ways to maximise their income. There are water tariffs to help reduce water bills. For instance, households on benefits with high water usage for WaterSure through their water company.

There are also social tariffs for fixed broadband, where households apply for discounts on their broadband or phone services. Discount plans are offered by BT, Virgin, O2, Hyperoptic, Community Fibre, G Network, and KCOM.

Typically, benefit recipients must be the account holder and in receipt of some type of government benefit. Like the WHD, each provider has slightly different plans and eligibility criteria. Providers must be contacted directly to receive more information about support they offer.

This variability in support schemes may create friction on the journey to claiming these benefits and contribute to the low take-up of this support. In this case, 4.2 million households are eligible for telecoms support but only 55,000 take up these benefits.

How to get the most from the help available

As mentioned in Deven’s LBC interview, “Don’t assume you are receiving all the benefits you are entitled to, always check, and if you find that something really essential like electricity for a piece of medical kit at home or a kit that allows mobility, if in doubt and you’re feeling the pressure on that particular cost just reach out and seek help.” If you are looking to understand what benefits you may be entitled to, our calculator is a great place to start.

To help another organisation as they support households during the cost of living, Policy in Practice donated our LBC appearance fee to Refuge Charity. This charity provides services to survivors of domestic abuse and runs a Freephone 24 hour National Domestic Abuse Helpline.

But overall, the existence of these measures gives us opportunities to re-evaluate the nature of the current benefits landscape.

In Deven’s second LBC appearance, Shelagh asked whether we can draw parallels between the government’s responses during COVID pandemic and the cost of living crisis. He remarked that in both cases we see “fundamental questions of society, and we need a long term approach to tackle it.”

The new support measures expose both the gaps and the weak substance of the safety net as it fails to support the weight of the people falling upon hard times. Yet, this does not have to be the case.

Benefit programmes like UC continue to have, but not use, the very mechanisms needed to be flexible. They can provide a foundation upon which to graft better social policies that actually meet the needs of people with the lowest incomes.

Next steps

• Use our free benefits calculator to understand your entitlement to benefits and other support
• Join our webinar Migrating to Universal Credit during the cost of living crisis on Wednesday 25 May. Register here
• To learn more about how we can help you support your residents with the move to Universal Credit, please email hello@policyinpractice.co.uk