UK Chancellor of the Exchequer Rachel Reeves (Image: Getty)
Millions of households will by ￡500-a-week poorer because of poor economic growth and Chancellor Rachel Reeves’s announcements, a new analysis shows. A study by think tank the Resolution Foundation found the combination of a weak economic outlook and benefit cuts that fall disproportionately on lower-income families means that average income for the poorest half of households is on track to fall by ￡500 on average over the next five years.
Ruth Curtice, the think tank’s, said: “The outlook for living standards remains bleak. Britain’s poor economic performance, combined with policies that bear down hardest on those on modest incomes, means that 10 million working-age households across the bottom half of the income distribution are on track to get ￡500 a year poorer over the course of the Parliament.” Economists warned of further uncertainty ahead of the autumn budget, while opposition critics accused Ms Reeves of mismanaging the public finances, and unions said the policy changes marked a return to austerity.
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Reeves struggled to respond when confronted with evidence that her own Government is forcing 250,000 people into poverty, including 50,000 children.
An impact assessment published by the Department for Work and Pensions (DWP) has revealed the impact of changes to the benefits system including new rules making it harder to claim Personal Independence Payments (PIP). This is money given to people with long-term illnesses or disabilities to help with living costs.
The Government’s paper says: “We estimate there will be an additional 250,000 people (including 50,000 children) in relative poverty after housing costs in 2029/30 as a result of modelled changes to social security, compared to the baseline projections.”
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But the Chancellor simply denied the figures were correct when she was questioned on Sky News. She said: “I am absolutely certain that our reforms, instead of pushing people into poverty, are going to get people into work.
“And we know that if you move from welfare into work, you are much less likely to be in poverty.
“That is our ambition, making people better off, not making people worse off, and also the welfare state will always be there for people who genuinely need it.”
According to the DWP paper, changes to PIP entitlement rules mean 370,000 current recipients will lose the benefit and 430,000 people who would have got PIP in the future will now no longer do so. The average loss is ￡4,500 per year.
In addition, 2.25 million current recipients of Universal Credit will lose an average of ￡500 a year due to cuts in the health element of this benefit, while 730,000 future recipients will lose an average of ￡3,000 a year. However some 3.9m households not on the Universal Credit Health element are expected to gain from the increase in the standard allowance, with an average gain of ￡265 per year.
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But she defended her decisions in an article written for The Times newspaper, saying that there would be “no quick solutions” to fix Britain’s financial woes.
The Chancellor wrote: “While there are no quick solutions to fixing our damaged economy, our plan for change is starting to bear fruit: interest rates cut and wages up; waiting lists down and defence bolstered; the economy predicted to grow faster than the OBR had previously expected from 2026.
“I won’t shy away from the challenges we face, and change won’t happen overnight. But the prize on offer to us is immense.
“Shovels in the ground and cranes in the sky, and an economy that finally delivers on the priorities of the British people.”
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Budget watchdog the Office for Budget Responsibility (OBR) said the ￡14 billion of measures to restore Ms Reeves’s headroom back to ￡9.9 billion came from “direct savings from welfare reforms and the reduction in day-to-day departmental spending” along with the “indirect boost” from changes such as planning reforms.
The watchdog also halved its forecast for growth in gross domestic product in 2025 from 2% to just 1%, but upgraded its forecasts for subsequent years.
GDP is expected to increase by 1.9% in 2026, 1.8% in 2027, 1.7% in 2028 and 1.8% in 2029, though the watchdog warned tariffs threatened by Donald Trump could wipe out the Chancellor’s relatively thin ￡9.9 billion buffer.