Benefit Bill could have devastating effect says Oxfam

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George Osborne’s plan for a real-terms cut in working-age benefits could increase poverty and have a “devastating” effect, Oxfam has warned.

The Welfare Benefits Up-Rating Bill, which has just been published, will face its first test on January 8 when MPs decide whether to give it a second reading.

The Chancellor announced in his Autumn Statement earlier this month that many benefits would rise by 1 per cent in each of the next three years, meaning the increase is below the level of inflation.

The change has already been announced for 2013-14, and the Bill will put the same restriction in place for 2014-15 an 2015-16.

Benefits for carers and disability benefits such as attendance allowance, the disability elements of tax credits, disability living allowance and the support component of employment and support allowance will continue to be up-rated in line with price inflation.

Minister for Pensions Steve Webb said: “In difficult economic times we’ve protected the incomes of pensioners and disabled people who have little means to increase their income. We have also committed to helping people who rely on working-age benefits and tax credits and will increase that support by one per cent.

“By raising the personal allowance threshold we’ve lifted over two million low earners out of tax altogether.”

But Oxfam’s UK poverty director Chris Johnes said: “This Bill will effectively mean a permanent reduction of benefits, which could be devastating at a time when a proper safety net is desperately needed by millions of the most vulnerable people in Britain.

“Benefits are already at their lowest levels relative to average incomes since the welfare state was founded and it’s highly likely that this regressive change could lead to an increase in poverty, especially for those people who are already facing a perfect storm of cuts to public services and rising prices.

“The Government need to look for ways to get rid of the deficit that don’t harm poor families, like doing more to make companies and individuals who avoid paying tax contribute their fair share, rather than making more cuts to an already-struggling welfare system.”

Labour has claimed that the one per cent rise is a “tax on strivers” as it will mean a real-terms cut in the benefits paid to low-income working households as well as those on out-of-work benefits.

TUC general secretary Brendan Barber said: “The Chancellor’s decision to cap benefit rises at one per cent is yet another squeeze on working families’ budgets.

“At a time when real wages are still falling the Government is taking thousands away from struggling households in tax credits and child benefit whose value is also being cut.”