Spending Review 2020: From health crisis to economic emergency

The backdrop to the spending plans announced this week is a deeper and longer lasting economic impact than hoped for at the start of the Covid-19 crisis. 

Despite the bad news about the economy there was some good news for low-income families. People earning under £24,000 were exempt from the public-sector pay freeze and the National Minimum Wage was extended to those aged 23 and 24. 

Yet the Spending Review 2020 did nothing to address the nationwide concern around child poverty. Given that 70% of children living in poverty are in a working household, a real boost to the National Minimum Wage would have benefitted poorer families.

Pre-covid this was expected to rise to £9.21 an hour from next April but is now considerably less at an increase of 18p an hour to £8.91 an hour. Due to the tapering away of benefit, people who rely on Universal Credit and who work 35 hours at the minimum wage will see a rise of just £7.25 a month.

With unemployment predicted to rise to 7.5% it was particularly disappointing that no commitment was given to continue the £20 a week uplift in Universal Credit and Working Tax Credits or the suspension of the Minimum Income Floor.

Analysis by Policy in Practice showed that these measures increased the average take home income of households in receipt of Universal Credit by over £90 a month and meant that 6% of households who previously could not meet their outgoings were now able to do. Removal of these measures in April 2021 will have a major impact on households already struggling.

Individual advice is essential. Self employed households may be better off moving from legacy benefits to Universal Credit in the short-term but will be worse off if the Minimum Income Floor is introduced in April. 

The Spending Review 2020 outlined additional funds for councils including £1.55 billion for additional Covid expenditure, £762 million to cover uncollected council tax payments, and £670 million to help low-income council tax payers. Councils will need to ensure that their discretionary support is well targeted to support their residents who are most in need.

Alongside better integration with local services, it’s essential that councils have the tools to tackle debt, food and financial worries, so people are in a position to effectively look for work.

Those working at the frontline will hope that the government reconsiders the impact of an income shock caused by the withdrawal of these measures in the Spring budget.

We urge the government to revisit the decision to freeze housing support for private tenants as demand for affordable homes for households in receipt of benefits is soon likely to outstrip supply, risking debt and homelessness. 

The government should also increase the National Minimum Wage to the levels planned pre-Covid. 

With unemployment set to rise to 2.6 million next year frontline organisations are more important than ever. They need to be equipped to provide welfare advice to help people affected by Covid to make decisions that are right for them.