Millions of UK households will take a £1,000-a-year hit to their incomes as government crisis support is wound down next year, a think tank has warned.
The Resolution Foundation said low-income working families with young children were among those most likely to take a “fresh income shock” under plans to slash benefit levels next April.
The UK government increased welfare support when the virus and lockdown hit millions of workers’ jobs and incomes earlier this year.
But the hike to universal credit and working tax credits was only temporary, leaving households facing a £20-a-week cut to their incomes when the top-up expires next year.
The wind-down of Britain’s furlough scheme has sparked a backlash amid warnings of widespread job losses. But the looming fall-off in benefit support has received less attention, despite widespread pay and job cuts and expectations of rising unemployment later this year.
Separate research by the think tank in July found average incomes have suffered their steepest hit in half a century. Most economists expect the unemployment rate will still stand at 6.5% in late 2021, up by almost two-thirds on levels seen in the three months before Britain went into lockdown.
The Resolution Foundation said in a new report the UK government’s £71.5bn ($93.1bn) of income support so far had been “evenly shared” between generations. But it warned younger people were not only more likely to risk job loss as furlough grants are cut, but also to be hit by the loss of welfare support next year.
The think tank has previously estimated around six million households will be affected by the benefit cuts, including more than one million people in their early 30s.
“The chancellor should use his upcoming Budget to extend the temporary benefits boost so that millions of families don’t suffer a fresh income shock next April at a time when unemployment is still likely to be high,” said Karl Handscomb, a senior economist at the foundation, which focuses on living standards.
Philippa Stroud, a Conservative peer who helped introduce universal credit in government in the early 2010s, also told Yahoo Finance UK last month the top-up should be extended.
“This would reflect the investment that was intended when universal credit was first designed, and would help to protect those who have been hit hardest by the financial and employment impacts of the pandemic, which are likely to last for some time,” she said.
A DWP spokesperson said: “Government policies, in particular those related to the pandemic, are under constant review.
“We have provided £9.3bn extra welfare support to help those most in need, including increasing Universal Credit by up to £20 a week, as well as introducing income protection schemes, mortgage holidays and additional support for renters.
“This government is wholly committed to supporting the lowest paid families and has already taken significant steps including raising the living wage, ending the benefit freeze and increasing work incentives.”