Inflation might be difficult to understand but it is at the heart of poverty

Written by: Andrew Strong, Assistant Director (Policy and Communications), the ALLIANCE

Published: 12/02/2019

Changing social security inflationary measures has hit people's pockets - and hard. Now is the time for change.

I should start this opinion piece with a clarification – I am not an economist. Anyone who knows me will tell you that numbers aren’t really my strong point – and various Maths teachers who operated in the late 90s in the South Wales region would no doubt agree.

I have, however, had an interest in the inflationary measure used to uprate (i.e. increase) social security entitlements since 2010.

Back then as part of its raft of social security cuts (now collectively, and wrongly, referred to as “welfare reform”), the UK Government passed measures that changed the way in which it would calculate annual increases to keep entitlements such as Personal Independence Payments (PIP) and Employment and Support Allowance (ESA) in touch with the real costs of living.

It may sound dry, but this issue is very important because it determines the real terms value of these entitlements – so that entitlements don’t reduce in real value over time. In principle, it means that increases in the price of a TV licence, council tax or road tax shouldn’t outstrip increases in social security payments.

Moving from the Retail Price Index (RPI) to the, usually, lower Consumer Price Index (CPI) was a measure which went largely unnoticed, albeit for a few campaigns which all went to great pains to explain how nobody understood inflation – and fewer understood these measures. This was in part because of its complexity but also because it coincided with a huge number of different changes, the impact of which were immediately apparent, including the large number of people projected to lose their eligibility for some social security entitlements. In the time since, these projections have become a grim daily reality for so many disabled people, people living with long term conditions and unpaid carers across the United Kingdom.

The reality is that changing inflationary measures has led to a series of events which has over time hit the pockets of people who use the social security system – and hard. Calculations made based on a June 2010 Parliamentary Answer by the then Minister for Pensions Steve Webb MP (this link will take you away from our website) suggest that five years after this decision everyone in receipt of Carers Allowance was £135.20 worse off than they would have been – and this is compounded year on year.

That’s why I was disappointed to note this week that the Scottish Government has opted not to change the inflationary measure from CPI back to RPI in its regulations for the new Scottish-administered Carers Allowance. This could set a precedent for future Scottish administered social security entitlements, such as the new disability and employment-injury assistances that will replace PIP and Industrial Injuries Disability Benefit.

Sticking with the status quo could have significant consequences for other Scottish Government priorities. Using RPI ahead of other measures is ultimately preferable because it is, usually, more generous and will put more money into people’s pockets. Engender have previously made it clear (this link will take you away from our website) that capacity to tackle women’s poverty could be affected, undermining gender equality, and Inclusion Scotland argued in the first consultation on Scotland’s new social security system (this link will take you away from our website) that using CPI will make it “much harder, if not impossible”, to achieve the Scottish Government’s own child poverty targets.

This is a choice. Different measures are already used to uprate a range of different functions, RPI is still used to uprate train fares and student loans for instance. The Social Security (Scotland) Act 2018 allows the Scottish Government to adjust this figure (this link will take you away from our website). It is choosing not to do so. Doing things differently in the social security system is about more than creating a system based on fairness and listening. It’s also about doing the right thing – and offering support tailored to the reality of living in communities across Scotland.

Back in 2010 this was a particularly pernicious cut. Let’s not repeat the mistakes of a decade ago.

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