Poverty and Inequality

08.11.17

Benefit cuts expose low-income families to future recessions

Planned benefit cuts will expose low-income households to the risk of future recessions, according to a report by the Institute for Fiscal Studies (IFS).

When the cuts are fully in place, if the falls in earnings that were seen between 2007-08 and 2011-12 were repeated again, the poorest 30% would see their net earnings fall by 53p for every £1.

The Office for Budget Responsibility has said that there is a 50:50 chance of recession in any five-year period.

The IFS says that economic uncertainty is currently high and warns that when the next recession does hit, low-income households will receive less support from the tax and benefit system.

Amongst the changes being rolled out are cuts to child tax credit, a freeze to many working-age benefits, as well as the introduction of Universal Credit.

Andrew Hood, senior research economist at IFS, said: “When governments change the tax and benefit system they should consider the impact on the support the system will provide to households when the next recession hits.

“Planned cuts to working-age benefits will leave low-income households with children in particular more exposed to any future downturn in the labour market, by reducing the extent to which earnings losses would be offset by increased entitlement to benefits.

“This is particularly important since many in this group have little or no savings which they can draw on during a period of temporary difficulty.”

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