This simple chart shows why 5.6 million families will be hundreds of pounds worse off this year

·Data and Politics News Editor, Yahoo News UK
·5-min read
People in Parliament Square, London, take part in the People's Assembly nationwide protest about cost of living crisis. Picture date: Friday February 11, 2022.
Protesters gather in Parliament Square, London, to take part in the People's Assembly nationwide protest about the cost of living crisison 11 February 2022. (PA Images)

With households already struggling due to the cost-of-living crisis, millions of lower-income families are facing further hardship in spring.

The Bank of England forecasts that inflation will hit at least 7% in April. At the same time, Universal Credit payments are due to increase by just 3.1%.

According to the Child Poverty Action Group, this will leave families with children on Universal Credit around £570 a year worse off on average.

Some 5.6 million households in the UK relied on Universal Credit in January 2022, according to the latest figures from the Department for Work and Pensions.

Inflation is set to rise more than twice as fast as Universal Credit (Yahoo News UK/Flourish/ONS/DWP/BoE)
Inflation is set to rise more than twice as fast as Universal Credit (Yahoo News UK/Flourish/ONS/DWP/BoE)

In February, MPs voted through the annual pensions and benefits uprating order, deciding on a 3.1% increase to benefit and tax credit rates. The rate also applies to state pensions.

The increase is linked to inflation in order to reflect changes to households' costs. However, the rate voted through in February was based on inflation data from September 2021.

Since then, inflation has rocketed to the highest levels seen in decades.

Inflation in the UK has hit its highest level for decades (Yahoo News UK/Flourish/ONS)
Inflation in the UK has hit its highest level for decades (Yahoo News UK/Flourish/ONS)

The government's decision to uprate benefits at this level amounts to a cut to the incomes of some of the poorest families in the country, and could pull 400,000 people into poverty, according to The Joseph Rowntree Foundation (JRF).

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The JRF has called on Boris Johnson to increase benefits in line with the Bank of England’s forecast of 7% inflation by April as an immediate first step to help keep up with the soaring cost of living.

A report by the charity found that families are already going without essentials, concluding that a reduction in the value of benefit levels “could not come at a worse time”.

File photo dated 15/10/21 of shoppers in the fruit and vegetables section of a branch of Sainsbury's in London. Food prices are rising at near-record levels as the cost-of-living crisis bites, according to new data. Issue date: Tuesday March 1, 2022.
The cost of living in the UK is rising at a rate not seen for decades, with essentials such as groceries and energy bills seeing steep rises in price (PA Images)

Peter Matejic, deputy director of evidence and impact at JRF, said: “The decision not to uprate benefits in line with inflation represents another cut for millions of people whose incomes will now fall even further behind the cost of living.

“There can be no justification for this. Our social security system should protect people from harm, not put them in danger.

“The government must change course and ensure that benefit levels reflect the higher rate of inflation we are all now experiencing.

"There is no doubt that a failure to do so will leave more people in our society unable to meet their most basic needs.”

Work and Pensions Secretary Therese Coffey leaves Downing Street, London, following the government's weekly Cabinet meeting. Picture date: Tuesday February 8, 2022.
Work and pensions secretary Therese Coffey defended the decision to raise benefits by less than the current level of inflation (PA Images)

Speaking in February when the uprating decision was made, the work and pensions secretary defended the decision to increase benefits based on inflation data that pre-dates the recent cost of living rises.

Therese Coffey was asked by MPs if this will leave people in an “impossible position for the next year”.

She told the Work and Pensions Committee: “We have this consistent approach using the same index year on year.

"Inflation moves around and I think it was a reasonable approach to continue with that consistency.”

The change to benefits coincides with a steep hike to energy bills in April.

Energy regulator Ofgem announced in February that the price cap will increase from 1 April, affecting approximately 22 million customers. The average annual bill for those on default tariffs paying by direct debit will see an increase of £693 from £1,277 to £1,971 per year, a rise of 54%.

Energy prices are set to soar again next winter (Yahoo News UK/Flourish/Ofgem/Investec)
Energy prices are set to soar again next winter (Yahoo News UK/Flourish/Ofgem/Investec)

Analysis by the Child Poverty Action Group finds that energy bills for families with children in poverty are set to rise by around £60 a month.

While the government's council tax rebate scheme will mitigate some of that cost through spring and summer, families in poverty will need to cover around £35 in additional energy bills each month, the charity's research found.

Data this week shows that food prices are rising at near-record levels.

According to Kantar, grocery inflation in February was 4.3%, with prices rising fastest for savoury snacks, fresh beef, and cat food, while the cost of bacon, beer, lager, and spirits fell.

Food inflation chart
Food inflation chart

Fraser McKevitt, head of retail and consumer insight at Kantar, said: “Apart from the start of the pandemic, when we saw grocers cut promotional deals to maintain availability, this is the fastest rate of inflation we’ve recorded since September 2013.

“Added to this, ongoing supply chain pressures and the potential impact of the conflict in Ukraine are set to continue pushing up prices paid by consumers."

Foreign secretary Liz Truss acknowledged on Sunday that the invasion of Ukraine could worsen the UK's cost-of-living crisis.

Truss said the fight for Ukraine's freedom "has a very high cost for us".

While the UK is less reliant on Russian energy than other European countries – imports from Russia made up only 4% of the UK's gas supply last year – supply issues to the continent will likely drive up prices as part of a knock-on effect.