Cost of Living: Public Well-being

Baroness Sherlock Excerpts

Thursday 20th October 2022 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, my noble friend Lady Drake has done a characteristically brilliant job of describing the impact of the rising cost of living across the whole landscape. I will focus specifically on the impact of inflation on low-income households, especially those who depend on benefits for their survival. I warn noble Lords up front that this will get techy and dull in parts but, frankly, given what is happening down the other end, a bit of dullness would not do us any harm.

I get really cross when I hear jibes, to this day, about the idle poor and Benefits Street. If we are to be a country where your well-being is not determined solely by having chosen your parents with care, we need a thriving welfare state. We have the basics of it there but we do not need one that is simply a safety net. We also want something that can fulfil its original ambition to be a companion service to the NHS—something that pools risk across the population and across lifetimes, so that we pay in, work and contribute when we can and we take out when we cannot or when our needs are greater. We need a system that helps us: when we cannot work or can work only part-time; when we retire; if we get sick or injured; or if we are caring or bereaved.

We have a system but for it to work, benefits need to keep their value. Prior to 2011, rates were linked to the retail prices index—RPI—or a variation called Rossi. From 2011, they were linked to the consumer prices index—CPI. Incidentally, that RPI to CPI shift saved the Government a lot of money at the expense of the poor. The current measure used for uprating is the CPI 12-month rate for the September before the April when the increases take effect. That gap between September and April is allegedly there to allow the computers to be updated but, at a time of rising, high or unstable inflation, it can cause problems.

For example, the CPI rate in September 2021 was 3.1%, so benefits rose in April by that much; unfortunately, in April inflation was 9%. The CPI rate in the month just gone was 10.1%. Logically, that suggests benefits would rise by 10.1% in April—but if they do, the IFS says that would leave their real value around 6% below pre-pandemic levels, equivalent to about £500 per year for the average out-of-work claimant. That is because the rise last April was so much lower than inflation.

As noble Lords will have heard, many Ministers are now suggesting that CPI inflation uprating is too generous, and that perhaps some lower figure should be chosen. Does this mean that indexing is becoming a one-way bet, so that if inflation is low in September it must be stuck to, but if it is high in September it has to be rethought? What is the argument? Maybe it is that inflation is different for those on lower incomes. In fact, it is different. The ONS figures on inflation show that rising food prices were the biggest driver of rising inflation, at around 14%, but of course the poor spend far more of their income on essentials such as food. The IFS estimated that even with the energy price guarantee, from this month the poorest 1/10th will face an average inflation rate of 14%, compared with 10% for the richest. So maybe Ministers are arguing that these are very special circumstances, and that for one time only we have to move away from uprating by inflation, but let us look at what has happened since 2010.

The coalition Government limited most working-age benefits to a 1% annual increase for three years from 2013-14. The Conservative Government then froze those benefits in cash terms at their 2015-16 levels for another four years, so for seven years the value of benefits was slashed year on year, saving around £4.7 billion. Those cuts are baked in because every year future increases are a percentage of that lower value. That is before I even mention all the other cuts in benefit support—the two-child limit, the benefit cap, the bedroom tax, cuts in housing and council tax benefits, Sure Start and so much more.

Why would they do it? Ministers may say that they had no choice given the financial circumstances but let us look at a detailed study by Ruth Lupton et al, The Coalition’s Social Policy Record 2010-2015, which found that

“the poor bore the brunt of its changes to direct taxes, tax credits and benefits”.

Meanwhile, with the exception of the richest 5%, those in the top half of the distribution were net gainers. The report concluded:

“Perhaps surprisingly, overall the ‘welfare’ cuts and more generous tax allowances balanced each other out, contributing nothing to deficit reduction.”


Those austerity cuts were not needed to cut the deficit but to pay for tax cuts. Recently, when Ministers announced that they were going to cut taxes and might need benefit cuts to pay for them, this was a shift in scale rather than principle—albeit, I grant, a pretty dramatic shift in scale. I still cannot quite believe that we have seen a Government who have imperilled the stability of our entire economy, driven up inflation, interest and mortgage rates, and put pension funds at risk, then have the nerve to suggest that low-income families should pick up the bill for it.

Instability really matters on a macro scale because it shakes markets and makes us all poorer. It also matters on a micro scale because, when you can only just make ends meet, above all you need certainty. I am sure other noble Lords have had similar experiences, but I have never met so many people so scared about how they are going to manage in the weeks and months ahead. They are terrified that they cannot pay their bills, feed their kids or keep a roof over their head. Not only do we now have some 2,500 food banks, but already roughly 1,000 churches and 200 libraries have registered to become warm, welcome spaces because people cannot afford even to sit in their houses and heat them.

The problem with the rollercoaster politics we have been having is that no one trusts anything. Last night BBC News interviewed a pensioner, Betty from Sunderland, about the cost of living. She said:

“It fills you with dread. Are we going to have to start living on what little bit we’ve got saved? When that’s gone, where do we go from there?”


Faisal Islam told her the Government had decided they would after all uprate the state pension. She replied:

“That’s today. What happens tomorrow? They could change their minds by tomorrow because every day they change their minds.”


Quite so. This is not a game It is a life-or-death matter for millions of our citizens and they deserve better. I urge the Government to get a grip or get out.