We Need a Double Lock for Universal Credit

Data released yesterday by the ONS revealed that inflation has dropped to 1.7 per cent. Many people were quick to greet this news as a good thing and I accept that it is preferable to the incredibly high rate of inflation which has plagued the country for a number of years although I don’t think it is actually a good thing to see inflation fall below target for reasons I’ve set out previously. 

However, I think it is also problematic for another reason. While it is certainly welcome that the poorest households will no longer be seeing huge monthly increases in their monthly and annual bills, many will still face considerable hardship in the next financial year due to yesterday’s inflation data. This is because Universal Credit will be uprated in line with September’s inflation rate from April 2025. 

This is problematic because while it is welcome that the country is now experiencing lower inflation, it means that this uprating to Universal Credit is lower than the Bank of England’s inflation target of two per cent. The Bank will seek to correct this by lowering interest rates (as it should) in order to meet its mandated target of two per cent inflation. This will mean that Universal Credit claimants will see a real terms cut to their benefits.

This would be a bad thing in and of itself but things are actually even worse than that. While the previous government did do the right thing by uprating Universal Credit in line with inflation as well as providing a package of measures designed to help the poorest households tackle the cost of living crisis, this was starting from a very low point given previous real terms cuts to Universal Credit.

Moreover, we know that Universal Credit is already an inadequate system as it does not provide a true safety net for poor households. The basic rate of Universal Credit is not enough to cover basic household expenses and so forces many people into poverty and they are reliant on food banks.

As I’ve written previously, the government needs to take poverty seriously (something which I had hoped a Labour government would do). This should involve unfreezing the Local Housing Allowance which, alongside massively increasing housing supply by building more homes, will help to make housing more affordable for the poorest households.

However, the government should be prepared to be even bolder. It should introduce a ‘Double Lock’ on Universal Credit which would see that it would be guaranteed to rise every year in line with either inflation or 2.5 percent (whichever is highest). This would go some way to ensuring that the poorest households and those who find themselves unexpectedly out of work will have more of a safety net. What is more, the government should increase the ‘starting point’ from which it will be raised in the future by uplifting it to ensure it at least covers the very basics.

These measures — alongside scrapping the cruel two child limit on child benefit — would go a long way to helping the most vulnerable households cope with the high cost of living and at the very least avoid them being plunged further into poverty. They would be expensive but this could (and should) be offset by means testing the State Pension and replacing the Triple Lock with a Double Lock so that all benefits are treated more equally. What is more, people of State Pension age who work should have to pay National Insurance Contributions on their income.

Other stuff

On a related note, last week I wrote an article for CapX. It was on why I’m nervous about the government’s workers’ rights reforms as I fear that they could do more harm than good. You can read it here.

I plan to flesh out how I think the work and welfare system should look in a future blog or article (and more completely in the book), but the aim should be more flexible labour markets where workers are provided with an effective safety net and increased bargaining power through the benefits system.

Thanks as ever for reading. I have at least two upcoming opinion pieces to do with National Insurance and government borrowing which I will share on here. I will also probably write something about Capital Gains Tax as well as a response to the Budget.