Tuesday, April 29, 2025
Labour's benefit cuts could stifle the UK economy
The Guardian reports that the anti-poverty charity Trussell has warned that Labour’s tough stance on benefits is costing Britain’s economy billions of pounds each year while adding to the pressure on public services by pushing more people into poverty.
The paper says that Trussell believes that failing to tackle hunger and hardship will have severe human costs and cause damage to the wider economy and public finances:
Attacking Labour’s drive to find savings from the welfare bill despite repeated promises that there would be no return to austerity, it said the UK’s elevated levels of poverty meant the economy was missing out on more than £38bn each year in potential output.
The intervention comes as the government prepares to publish its long-awaited strategy for tackling child poverty in June, amid the heightened risk of a rebellion by Labour MPs opposed to the £5bn benefit cuts announced by the chancellor, Rachel Reeves, in her spring statement.
It emerged last week that ministers are privately ruling out scrapping the controversial two-child limit introduced under the Conservatives, despite warnings from charities that a failure to do so could result in the highest levels of child poverty since records began.
Criticising the government’s benefit cuts and urging ministers to rethink their resistance to abolishing the two-child limit, Trussell argued that any narrow savings on the welfare bill should be viewed in the context of the wider costs to the UK economy, public finances and personal wellbeing.
In a report commissioned by the charity from experts at the consultancy WPI Economics, it said the UK was missing out on the full contributions of millions of people struggling in severe hardship.
It said as many as 9.3 million people in Britain faced hunger and hardship in the financial year ending in March 2023, including as many as 6.3 million adults and 3 million children. It defined a family as facing hunger and hardship if it was more than 25% below a poverty line set by the Social Metrics Commission, which measures a household’s savings and income.
Linking the impact of financial hardship on people’s chances of gaining and maintaining stable employment, it said lower levels of employment and weakness in productivity meant the economy was missing out on £38.2bn in annual output.
Without this contribution, the Treasury was also missing out on £18.4bn in tax revenues, and needed to spend about £5.3bn on social security payments to support people who were unemployed or receiving in-work benefits.
The higher likelihood that people in deep poverty require support from the NHS, social care services, homelessness support and the education system also meant there was a cost to the exchequer from high levels of poverty of about £13.7bn.
Part of this was down to an additional £1.5bn of spending allocated to schools to support children in poverty, such as free school meals and the pupil premium.
Although Trussell said the costs could not be immediately overcome, because policy changes take time to benefit a household’s financial position, it urged ministers to move quickly to revise their position on key benefit policies.
It said abolishing the two-child limit would lift 670,000 people out of facing hunger and hardship, including 470,000 children. This would lead to a reduction in costs to the economy, public services and the exchequer of more than £3bn.
Labour are learning that if you adopt an austerity agenda, which they have, then it will have unexpected repercussions.
