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Social security cuts risk widening UK regional inequalities

Posted by Graham Whitham Senior Policy Advisor on UK Poverty and Inequality

29th Mar 2016

Council Housing in Tower Hamlets, dwarfed by the financial buildings of Canary Wharf. Credit: Abbie Trayler-Smith/Oxfam

OPINION: 

Graham Whitham, Senior Policy Advisor on UK Poverty, warns that the latest government budget decisions will have a negative impact on already high levels of poverty and inequality in the UK. 

Sheffield Hallam University recently published research showing how cuts to social security spending announced since the 2015 General Election fall geographically across Great Britain. The research, co-funded by Oxfam GB and the Joseph Rowntree Foundation, shows a clear North-South divide within England with many northern towns and cities being hit hardest whilst affluent parts of the South-East lose the least. Some inner London Boroughs are also among the worst affected places.

83% of cuts announced to date fall on families with children.  A total of £13 billion worth of cuts to social security spending have been announced since May 2015 (excluding measures announced in the March 2016 Budget) and will be implemented between now and 2020. These cuts fall on working age adults, with pensioners protected, and 83% of cuts announced to date fall on families with children.

The research estimates that couples with two or more dependent children will lose an average of £1,450 a year by 2020, with lone parents with two or more children losing an average of £1,750 a year. A number of the new reforms hit tenants in council and housing association properties - in total they are set to lose more than £6bn a year, or nearly half the entire loss from the new reforms. On average, working-age social sector tenants lose more than five times as much as working-age owner occupiers.

The geographical divide, in terms of which areas lose most financially from cuts to social security, is perhaps the most striking finding from the research. Blackburn, Darwen and Blackpool are the worst affected districts in the country. In these areas people will lose an average of £560 per working age adult by 2020 as a result of social security cuts, compared to average losses of between £130 and £170 in prosperous parts of southern England. Out of the worst affected 20 districts in the UK, eight are in the North West alone, and almost half of the worst hit 50 districts are in the North of England. London Boroughs such as Barking and Dagenham also feature high up the list of areas worst affected.

the National Living Wage... and increases in childcare support... do not offset the losses to households hit by social security cuts.Oxfam is concerned that social security cuts will further entrench deep-seated regional inequalities across Britain. The cuts in support for things like Housing Benefit, tax credits and Universal Credit risk pushing more people into poverty and deprivation and will suck money out of already struggling local economies. As an example, the cuts take a total of £709 million out of Greater Manchester by 2020. This will reduce spending in the local economy and increase pressure on local services having to respond to increased levels of hardship. These cuts are on top of cuts to local authority budgets which have disproportionately hit areas with higher levels of poverty.

Positive measures such as the introduction of the National Living Wage of £7.20 per hour for over 25s, and increases in childcare support, are welcome, but they do not offset the losses to households hit by social security cuts. In many cases, those who are hit by social security cuts won't benefit from positive government policies.

The increase in the point at which people pay income tax (known as the personal allowance threshold), will move to £12,500 this year, this has been presented as an anti-poverty measure. This and other increases in the personal tax allowance since 2010 are likely to cost the Exchequer around £13 billion this year. However, the real benefits of the policy reach up the income scale and do not affect those with earnings below £12,500 which includes many people in low-paid and part-time jobs.

By going further in a number of key policy areas the government could help address poverty and inequality in the UK. For example, it could boost incomes at the bottom by introducing the higher voluntary Living Wage rate of £8.25 an hour (as opposed to the £7.20 National Living Wage rate) and extending this to the under 25s. It could reduce the amount people lose in tax credit and benefit payments as their earnings go up to levels similar to the top rate of tax paid. This would be a much more targeted and cost effective means of tackling poverty and boosting work incentives than increasing the personal tax allowance.

Ultimately however, a proper strategy for addressing poverty in the UK is required and it is difficult to see how poverty and inequality in the UK can be properly addressed without addressing regional inequalities. Moving towards a 'high pay, low welfare' economy can only happen if we have strong local economies in each part of the country, and the state will need to continue to adequately recognise the extra costs some people face, including people with disabilities and people with families, through an effective and sufficiently resourced social security system.

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Photo: Council Housing in Tower Hamlets, dwarfed by the financial buildings of Canary Wharf. Credit: Abbie Trayler-Smith/Oxfam

Blog post written by Graham Whitham

Senior Policy Advisor on UK Poverty and Inequality

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