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Labour ‘must spend billions on welfare or poverty will soar’

<span>Shadow work and pensions secretary Liz Kendall, pictured with the Labour leader Keir Starmer, met members of thinktanks including the Resolution Foundation and IPPR.</span><span>Photograph: Jordan Pettitt/PA</span>
Shadow work and pensions secretary Liz Kendall, pictured with the Labour leader Keir Starmer, met members of thinktanks including the Resolution Foundation and IPPR.Photograph: Jordan Pettitt/PA

Labour is being warned by a powerful alliance of thinktanks and charities that poverty will soar if it comes to power and then fails to spend many billions of pounds on welfare reform to help those struggling most with the cost of living.

The Observer understands that shadow work and benefits secretary Liz Kendall met representatives of several organisations, including the centre-left IPPR thinktank which is influential in Labour’s policy debate, the Joseph Rowntree Foundation, the independent Resolution Foundation, whose president is former Tory minister David Willetts, and Save the Children at a round table last week at which serious concerns were raised.

With a general election approaching and Labour well ahead in the polls, pressure is now growing on Keir Starmer’s party to flesh out its policies on welfare at a time of acute cost of living pressure, and how it will help more people into stable, sustainable work. But with the party desperate to be seen as fiscally responsible, frustration is growing among some in policy circles at its lack of ambition.

A new report by IPPR and Changing Realities, a research project looking at the experiences of families living on low incomes, identifies the two key challenges as being measures to tackle poverty, and policies to open opportunities to good quality work. It says 14.4 million people in the UK are now in poverty, with the situation set to worsen without radical change.

“Poverty and extreme financial hardship have become acute problems,” the new report says. “With wages at a standstill over the last decade, recent soaring prices came at a time when many households were already struggling to meet essential costs. While some have seen their earnings increase in the period since the cost of living crisis started, for many the damage had already been done. Use of foodbanks has reached unprecedented levels, and there has been a sharp rise in households taking out loans to cover bills and daily spending.”

It says that “people on low incomes too often cycle between low-paid, insecure roles and stints of unemployment” with the number of “economically inactive” people (those out of work and not actively looking for work) at record levels. “For too long, our welfare state has taken a punitive approach, ignoring individual motivations and challenges and wasting resources on approaches to that simply don’t work.”

The reports adds: “Decisive action in these areas will also be essential for any government working to break down the barriers that have held back our economy.”

A package of measures put forward by IPPR and Changing Realities includes: increasing the core entitlement for all households on universal credit by £50 a month, which it says alone would lift 350,000 people out of poverty: removing the two-child limit on benefit entitlements, and the benefit cap, to tackle child poverty and restore the link between entitlement and need; and tackling the five-week wait before new claimants receive payments.

These measures together, the report says, would lift one million people out of poverty at an estimated cost of £12bn a year, while boosting the economy at the same time. Mel Wilkes, associate director for work and the welfare state at IPPR, said: “We know that millions of people across the country are struggling to get by. Our welfare state is letting them down – as it operates now, universal credit doesn’t protect people from poverty, and the five-week wait coupled with large debt deductions are pushing people in crisis into real hardship. These short-term reforms could be quickly adopted by any government, helping to lift families out of poverty, and make sure that people are meaningfully better off in work.”

Last autumn Labour supported uprating benefits in line with inflation. But it remains opposed to ending the two-child limit, which means children in larger families are not eligible for child payments under universal credit. Last week Starmer announced plans to reform incapacity benefit and to encourage more young people into work with new teams of employment officers.

A Resolution Foundation spokesperson said its most recent report “included a call to link both working-age and pensioner benefits to earnings, to introduce a new unemployment insurance scheme to help people move jobs, and to reduce child poverty by abolishing the benefit cap and two child-limit on welfare support.”

The Joseph Rowntree Foundation said it was calling on all parties to urgently address entrenched high levels of poverty by introducing an ‘Essentials Guarantee’ into Universal Credit. This would ensure that everyone has a protected minimum amount of support to afford essentials like food and household bills. The policy would cost an additional £22bn a year. A top priority for Save the Children is ending the two-child limit on Universal Credit payments.

A Labour spokesperson said: “One in five people trapped in poverty is the devastating consequence of 14 years of Tory misery.

The responsibility lies firmly at the feet of a failed government that has crashed the economy and unleashed a cost of living crisis, pushing families into poverty right across the country.

“Labour is committed to fixing this Tory failure. Our plan to tackle the root causes of poverty will grow the economy to put money back into people’s pockets, reform social security, create well-paid jobs, and deliver a bold, new cross-government child poverty strategy.”