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The UK has one of the “meanest welfare systems in Europe”, a leading economist has warned, as Jeremy Hunt considers cutting this year’s annual benefit rise.
The Chancellor has refused to rule out that he is looking into linking this year’s universal credit increase to a lower rate of inflation in a move that would save the Exchequer around £2bn.
Under the plans, Mr Hunt could link the uprating of benefits to October’s lower headline rate of 4.6 per cent, rather than pegging it to the usual September rate, which was 6.7 per cent.
The Treasury is understood to be looking at the plans as a means of funding potential tax cuts elsewhere.
Paul Johnson, director of the Institute for Fiscal Studies, said that there were currently a lot of people out of work at a time of a “tight labour market”.
And he added: “We do have possibly the meanest welfare system in Europe in terms of how it treats those who are unemployed.
“The level of unemployment benefits have not risen in real terms in more than 50 years, whilst earnings and so on, have gone up two and a half three times. The level of that benefit is way below where it used to be relative to earnings,” he told Sky News.
The suggestion that the Government could use money saved by making cuts to the benefits system to fund tax cuts for wealthier people, such as inheritance tax, has prompted concerns from former civil servants and Labour.
Lord Nick Macpherson, former permanent secretary at the Treasury, said on X, formerly known as Twitter: “Even this hard bitten former HMT official would feel a little queasy if [the Chancellor] combines a cut which unambiguously helps the wealthy while cutting (in real terms) the benefits of the poor.”
Shadow Chancellor Rachel Reeves said Labour would raise benefits in line with September inflation figures if elected.
Asked on BBC’s Sunday with Laura Kuenssberg programme if she believed benefits should continue to rise with the level of inflation from September, Ms Reeves said: “Yes, I do.
“I think that’s the right thing to do. If you pick and choose from year to year which inflation number is the cheapest thing to do, then what you see is a gradual erosion of people’s incomes. And, you know, half of the people who are claiming universal credit, around half of those people are also in work. And this is to top up low pay and insecure work.”
Asked what she would do if Labour inherit a situation where they have gone up by less than that, the frontbencher said: “The election is likely to come in a year’s time and the Government will have already implemented that, but in government I will use the inflation rate that is traditional, the September inflation, to uprate benefits.”