New analysis: Increasing Universal Credit by 13.3% will help low-income households pay for increased energy costs

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Policy in Practice’s new analysis for the Centre for Social Justice (CSJ) shows that increasing Universal Credit in October can neutralise the upcoming rise in energy bills and household costs for low income households. This should be accompanied by a lump sum payment to households on legacy benefits averaging £225 per household to cover the period from October to January.

The CSJ is calling for a 13.3% increase to Universal Credit, to rise by a further 8.5% in January, based on new analysis by Policy in Practice. The CSJ is also calling for a commitment from the government to review this increase before the next energy price cap rise in January 2023.

If the current forecast of the energy price cap of £5,386 is accurate, our analysis shows that Universal Credit will need to be increased by a further 8.5% in January to again neutralise the cost increase for low-income households. A second lump sum payment in January averaging £385 per household would also be necessary to give equivalent support to households on legacy benefits.

Alongside increasing Universal Credit, the CSJ recommends restoring Universal Credit work allowances to their 2015 levels. This would allow the 41% of households on UC that are in work to keep more of what they earn.

Source: Policy in Practice analysis of local authority administrative data on 114,000 low-income households on council tax support and/or housing benefit across six local authority areas in July 2022; ONS Family Spending Workbook; Ofgem; Cornwall Insights; DWP Stat X-plore; author’s calculations. *The Work Allowance element is averaged by household type and only applies to UC claimants who are in work. For lone parent households, the increase in income from the work allowance change would only apply to those who do not receive a housing element as part of their UC

These policies represent the minimum intervention required to help the most vulnerable families through this winter without having to choose between heating their homes and going into unmanageable debt. These households are already surviving on benefit levels that have fallen considerably behind inflation over the past decade and they cannot afford to take another hit on their incomes.

On top of this package, more must be done by the government to help middle-income households, small businesses and public services, who are starting to feel a significant hit from the unprecedented rises in energy costs.

Families with children on low incomes will be £1,700 worse off this winter

Our analysis of over 114,000 low-income households across the UK found that the average low-income family with children will be £1,700 worse off over the 6 months from October.

Policy in Practice conducted analysis on administration data from six local authorities spread geographically around the UK, representing over 114,000 low-income households. Household costs were estimated using the ONS Family Spending Workbook, with energy costs increased by 80% for the October forecast and 273% for the January forecast, to reflect the expected increases in the energy price cap. Other household costs were increased to reflect expected CPI inflation levels of 13.3% in October and 15% in January. The upcoming £400 energy rebate for all households was taken into account.

We found that low-income families with children will be £1,683 worse off on average by April 2023 if the current forecast for January’s price cap is accurate. This figure is £1,074 for lone parents, £1,040 for couples without children, £560 for single people and an average of £806 across all households. We also found that the proportion of households that will not be able to meet their expected household costs will nearly double, from 11% now to 20% in the first quarter of 2023.

Our analysis shows that the support announced by the government in May is no longer adequate in the new circumstances we face. Without a significant increase in support, these households will experience deepening poverty, increased debt and risk of homelessness this winter. Many will have to choose between eating and heating their homes in order to pay their bills.

Increasing Universal Credit in October is fair, targeted and straightforward to implement

Increasing Universal Credit by 13.3% in October means that extra support will be proportional to household sizes, with larger families receiving a bigger boost than single people. This avoids the problem created by the May support package which provided a lump sum payment of £650 to all households on benefits, regardless of their size. This meant that households with five people received an extra £130 per person, in comparison to single people who received £650.

Furthermore, the implementation of the £20 per week uplift to Universal Credit at the start of the pandemic demonstrated the flexibility of the Universal Credit system. The mechanism to get money quickly to families who need it the most is already in place and has been thoroughly stress tested during the pandemic. In comparison, another increase in funding for discretionary support would likely place the burden of administration on local authorities, which are already struggling with staffing capacity and declining budgets.

Further analysis and response to the cost of living crisis coming up

We will be publishing our full analysis on the new energy price cap figures over the next few days. Subscribe to our blog to automatically receive the following posts by email.

1. Detailed policy costings for increasing Universal Credit in October and January

• Uprating Universal Credit by 13.3% in October and a further 8.5% in January, plus equivalent lump sum payments for households on legacy benefits would cost an estimated £5.2 billion over the six months from October 2022 to April 2023
• Restoring UC work allowances to their 2015 levels would cost an additional £840 million per year
• These policies are progressive, proportional and get support to the people who need it the most

2. An analysis of how different households are impacted by rising energy costs

• Energy bills differ greatly depending on the energy efficiency of the home
• Large households in energy inefficient homes could pay £15,000 in energy costs next year
• Energy bills for large families could be up to nine times greater than for single households in January

3. A full breakdown of the results from our analysis on 114,000 low-income households

• Families with children will be £1,700 worse off on average by April without further support
• The number of households that will not be able to meet their expected monthly costs will double from January
• Almost 1 in 5 single households will not be able to afford all of their essential costs without additional support.