In May, the Bank of England (BoE) warned that the UK economy will slide into recession if higher energy prices continue to push inflation above 10%. The BoE also forecasts a spike in unemployment from 3.8% to 5.5% by Q2 2025. The Work Foundation’s UK Insecure Work Index, published today, also showed that there are more than 6 million people in the UK who are in severely insecure work.

Following growing pressure to act on the cost of living crisis, the Chancellor announced a package of measures worth £15 billion today to address spiralling prices for energy and other essentials.

What was announced?

Targeted support for individuals on the lowest incomes: More than 8 million households on means tested benefits will be sent a Cost of Living Payment of £650 through two instalments this year. This is a substantial uplift in support and stands to make a tangible difference to people facing the most acute cost pressures over the coming months. It is particularly positive that the payments will be made directly to bank accounts rather than requiring that people apply for funds themselves. Using financial support payments alongside bill subsidies, allows individuals the flexibility to meet the specific cost pressures they are facing. The Chancellor also provided welcome confirmation that benefits will be raised next April in line with inflation rates taken this September.

Support for older people: As pensioners are also disproportionately impacted by higher energy costs, a one-off £300 Pensioner Cost of Living Payment will be made. This will be made to over 8 million pensioner households across the UK who receive the Winter Fuel Payment.

Support to meet the extra costs of disability: The Government also announced a one off £150 to be paid to disabled benefit recipients who receive means tested benefits. This payment will be made on top of the £650 they will receive separately. Around six million people across the UK receive disability benefits and will be eligible for this payment. This will aim to support disabled people who are more likely to face extra costs such as equipment, food or increased transportation costs.

Broader energy bill subsidies: Every household will receive £400 towards their energy bills (doubled from £200 announced earlier this year). This Energy Bills Support Scheme comes in addition to the £150 Council Tax rebate for households in England in Council Tax bands A-D.

These measures will be partly funded through a new Profits Levy on energy firms, which will increase the headline tax rate for fossil fuel firms from 40% to 65% and is expected to raise around £5bn over the next year. The levy includes a new ‘super-deduction’ style relied upon to encourage firms to reinvest into oil and gas extraction. It will be a temporary measure, and is set close as energy prices fall back to previous levels.

To what extent does this meet the mark?

However, with the Bank of England predicting inflation to reach 9% later in the year, more action will be needed that extends beyond the two planned cash instalments.

We know that that our benefits system is among the least generous in the OECD and the updates set out today do not change this. Welfare policy should provide a safety net designed to help people cope with economic and financial shocks. But the need for repeated emergency measures has highlighted that it simply wasn’t fit to meet the challenges presented by the pandemic and the cost of living crisis. We need to rethink and rebuild our social security system so that we’re better prepared to manage other financial shocks in future.

The benefits system isn’t meeting the needs of individuals in insecure work. Our Index launched today underlines the need to adapt Universal Credit to deal more flexibly with irregular earnings and provide workers with greater certainty over their expected income.

And overall, as our report highlights, increasing the provision of secure work provided with good levels of pay is a key imperative.

The package of measures announced by the Chancellor today is welcome. But with the long-term economic prognosis still looking bleak, and many households already struggling, further measures will be needed. Beyond applying one-off economic ‘plasters’, Government should prioritise delivering more secure, better paid work.

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