The decade that broke Britain: the disastrous decisions that left millions in a cost of living crisis | Politics

Listening to the prime minister and his colleagues, you could be forgiven for thinking that the mounting cost of living crisis came out of the blue. As they see it, along came the war in Ukraine and what Boris Johnson has called “the aftershocks of Covid”, triggering rocketing inflation. Suddenly, the gap between people’s incomes and rising prices turned lives upside down.

In fact, for millions of people in Britain, 2022’s growing sense of disaster is another chapter in a story that goes back at least 10 years – to rules and regulations that turned the welfare state into a mess of trapdoors and tripwires, to the hacking back of benefits, to the dire treatment of disabled people and to a new world of work where chronic insecurity and flatlining pay are an everyday reality.

How did we get here? During the New Labour years, between 1997 and 2010, there was an emphasis on clamping down on “benefit cheats” and making Britain’s social security system more stringent. But the Blair and Brown governments also vowed to cut child poverty by at least 1 million by using such measures as tax credits. Despite an upward blip around the time of the crash of 2007-08, they succeeded.

The government of David Cameron, Nick Clegg and George Osborne was rather different. The tone and the language leading politicians used to talk about benefits, poverty and work became even more toxic, opening the way for drastic changes to what was now being called “welfare”.

Now, the prejudices and resentments of people outside the benefits system seemed to matter more than the people who needed help to try to stay afloat. “Fairness isn’t just about who gets help from the state,” said Cameron in October 2010, five months after becoming prime minister. “The other part of the equation is who gives that help, through their taxes. Taking more money from the man who goes out to work long hours each single day so the family next door can go on living a life on benefits without working – is that fair? … If you can work, but refuse to work, we will not let you live off the hard work of others.”

Coalition leaders David Cameron and Nick Clegg listen as chancellor George Osborne delivers his Autumn budget statement in 2012, after he warned Britons that they faced an extra year of austerity measures.
Coalition leaders David Cameron and Nick Clegg listen as chancellor George Osborne delivers his 2012 autumn budget statement, after warning Britons that they faced an extra year of austerity measures. Photograph: AFP/Getty Images

Welfare policy was driven by austerity, which was so drastic that an estimated £37bn was cut from benefits spending between 2010 and 2021. Right at the start, the new coalition government announced £11bn of “welfare reform savings”. Benefits were linked to the consumer prices index, a measure of inflation that tended to be lower than the previous measure. Housing benefit was cut. Meanwhile, the rise of insecure work continued apace – and plans were hatched for even more drastic changes.

Some of us have followed what has unfolded since, tracking the relevant facts and figures, as well as people’s experiences – of hunger, hardship and fear. Finally, at the end of May, the government bowed to months of pressure and announced a sizeable package of help, much aimed at the people struggling the most. But the measures are temporary and big questions remain.

Meanwhile, at the last count, in January, the number of people who had their benefits stopped or cut – usually for missing a meeting at the jobcentre – was close to 40,000. The people in power remain largely reluctant to intervene in the most insecure, exploitative corners of the economy, so the crisis grinds on. It is not something that arrived in a flash, but another episode in a very long saga.

Universal credit

Former work and pensions secretary Iain Duncan Smith, the architect of universal credit, in 2010.
Former work and pensions secretary Iain Duncan Smith, the architect of universal credit, in 2010. Photograph: Dan Kitwood/Getty Images

An array of changes to the UK’s benefits system was implemented by the Welfare Reform Act 2012. The biggest change was the introduction of universal credit, a catch-all monthly payment designed to replace six working-age benefits. “It is time to bring welfare into the 21st century,” said its champion, the work and pensions secretary – and former Tory leader – Iain Duncan Smith. “We want a system which isn’t seen as a doorway to hopelessness and despair, but instead as a doorway to real aspiration and achievement.”

Its introduction was much delayed and is still not fully complete. But there was anxiety from the off about the switch from a mixture of benefits paid monthly, weekly and fortnightly to a once-a-month payment that in many cases made budgeting more difficult for recipients.

There was also dismay about child benefit being included in a single payment paid to households, rather than being paid to mothers, which effectively transferred millions of payments to men. “That comes up a lot in domestic violence cases, where those issues become suddenly very stark,” says Alison Garnham, the chief executive of the Child Poverty Action Group (CPAG). “But we’re worried in general about what’s happened to child benefit. It’s lost nearly a quarter of its value in 10 years. What used to be our exemplary universal benefit is now in trouble and it desperately needs to be rescued.”

There are also major problems with the in-built delay – of five weeks or longer – between applying for universal credit and receiving any money, leading people into impossible levels of debt. Small wonder that the food bank charity the Trussell Trust said in 2017 that demand for its parcels had gone up by 30% in areas where the introduction of universal credit was at its most advanced.

Disability payments

Thirty per cent of the 13 million people with disabilities in the UK now live in poverty.
Thirty per cent of the 13 million people with disabilities in the UK now live in poverty. Photograph: SolStock/Getty Images

Perhaps the most glaring aspect of 10 years of cuts and so-called welfare reform concerns the awful treatment of disabled people. Conveniently enough for the government, it is a story about a complicated mess of changes. It is now a rule of thumb that when the benefits system is “reformed”, disabled people bear the brunt – something seen in everything from the toughening of so-called work capability assessments in 2011 to the replacement of disability living allowance with the personal independence payment in 2013. What is clear is that 30% of the 13 million people with disabilities in the UK – 3.8 million adults and 300,000 children – live in poverty.

There is no end of stark facts underlying those figures. As part of the introduction of universal credit, the government got rid of the severe disability premium, depriving disabled adults who live on their own – or with only a young carer – of about £58 a week. Since 2017, employment and support allowance – a benefit paid to people who have a disability or health condition that affects how much they can work – has been reduced by about £30 a week for many new claimants.

So-called sanctions, whereby people’s benefits are stopped, often for minor alleged breaches of the rules, have disproportionately affected disabled people. In 2018, one study found that unemployed disabled people were up to 53% more likely to have their payments docked than non-disabled people.

Worse still, since the money that used to go from Westminster and Whitehall to councils has been cut repeatedly, many local authorities have introduced or increased charges for disabled people’s social care. “They all started bringing in similar new policies that increased the amount they could charge people,” says Ellen Clifford, a disability-rights activist and the author of The War on Disabled People. “That means a lot of disabled people are having to pay much more for their social care, which leaves them very little to live on. The benefits they receive go straight out again.”

The benefit cap

This was the epitome of the coalition’s approach to welfare: an absolute limit on benefit payments, pegged to average individual earnings from work. It was a blatantly political move, aimed at voters who believed the stories that there were people living lives of luxury at the state’s expense. Osborne, the chancellor at the time, summarised it bluntly as “money to families who need it – but not more money than families who go out to work. That is what the British people mean by fair – and we will be the first government in history to bring it about.”

The cap was introduced in 2013 and set at £500 a week (£26,000 a year). For single people, it was £350 a week. Three years later, the cap came down to £23,000 a year for families in Greater London and £15,410 for single people in the capital. Elsewhere in the country, the figures were £20,000 and £13,400. Duncan Smith said the changes would “re-emphasise the message that it’s not fair for someone on benefits to be receiving more than someone in work”.

Because having small children often makes working impossible (chiefly because of childcare costs), parents endure the worst of the cap’s effects. Indeed, 85% of capped families have kids, while 65% of all capped households are single parents – people who tend to need benefits in the absence of a working partner. If they live in a high-cost housing area such as London, being capped is often inevitable – annual rent in the capital can easily top £20,000, which leaves a pittance to cover everything else.

Aurora is one of the many people whose lives have been ruined by the cap. A widow and single mother of two from outer London, she wants to work, but has found that childcare issues make this impossible (“I had to give up my last job a month ago, because my youngest is still in primary school and I wouldn’t have been able to pick him up on time”). She and her kids live in a privately rented home, for which she pays £1,800 a month. The cap means they are left with about £1,400 a year to live on. The extra money Rishi Sunak recently granted to the poorest households – a £650 one-off payment, as well as a £400 discount on energy bills given to all households and a £150 council tax rebate – will not change her basic predicament.

“I’m in a huge amount of debt,” she says. “A huge amount. I’ve been struggling with that and looking for work. I’m basically caught in this cycle. It’s never-ending. And now the costs of everything else are rising and I don’t know what’s going to happen. We’re going to be made homeless, which will cost the government more.”

Chancellor Rishi Sunak makes a statement on the cost of living crisis in the House of Commons on 26 May 2022.
Chancellor Rishi Sunak makes a statement on the cost of living crisis in the House of Commons on 26 May 2022. Photograph: UK Parliament/Jessica Taylor/PA

The bedroom tax

This was perhaps the most notorious element of the Welfare Reform Act 2012. The coalition called it the “underoccupancy charge” or “spare room subsidy”, but almost straight away the name that stuck was the bedroom tax. People living in council housing or homes they rented from housing associations would have their housing benefit reduced by 14% if they had a spare bedroom, or 25% if they had two or more. Supposedly, it would encourage a more efficient use of housing space.

A year afterwards, research by the BBC suggested that only about 6% of people affected had moved home. For the rest, the change simply meant less money and impossible budgeting decisions. One family of six I met in Hartlepool – who needed their “spare” room as a sensory space for an autistic child – saw their weekly housing benefit fall by £28 a week, which immediately pushed them further into food poverty.

Between March and November 2020, as the number of people who needed universal credit shot up thanks to the pandemic, the number of people affected by the bedroom tax rose by 40%, to 238,748. It is barely talked about any more, but it remains a big factor in many people’s inability to meet their most basic living costs.

Precarious work

A food bank in Edinburgh.
A food bank in Edinburgh. Photograph: Peter Summers/Getty Images

Ten years ago, jobs in which employees had no idea how many hours they would be working – and thus how much they would be earning – from one week to the next felt like a relative novelty. But, in 2014, a change in how official figures were calculated revealed the true extent of the problem. About half a million people were on zero-hours contracts. By 2020, that figure had doubled, which is one of the reasons why about 15% of the people who regularly use food banks are thought to be in work.

Conservative politicians have consistently refused to do anything meaningful about the zero-hours issue, which is strongly linked to the way the benefits system works, summed up by the term “conditionality”. Put simply, for around a decade, the state has pushed people into taking any work available under pain of having their benefits stopped, so people can do precious little to contest insecure conditions and poor wages. “It was all intended to force people into low-paid work,” says the CPAG’s Garnham. “What it hasn’t done is lift them out of poverty. We’ve done welfare to work. What we’ve not done is poverty to out-of-poverty.”

The benefits freeze

In 2014, Osborne announced his plan for a two-year benefits freeze, if the Conservatives were returned to power, to save another £3bn. In the summer of 2015, he confirmed the duration of the freeze would be doubled. It finally ended in April 2020, just after the start of the pandemic. It had affected just under 30 million people, cut the real-terms value of benefits by 6% since 2015, left the average poor couple with children £580 a year worse off and pushed 400,000 people into poverty.

The two-child limit

The two-child limit had become the biggest single driver of child poverty.
The two-child limit had become the biggest single driver of child poverty. Photograph: SolStock/Getty Images

This was designed, according to Duncan Smith, to “teach parents that children cost money”. It was central to the welfare reform bill that Labour MPs were instructed to abstain on – a notorious episode that was one of the key factors in propelling Jeremy Corbyn to the party leadership. The two-child limit – a crude restriction on child tax credits and universal credit payments to families, with the caveat that twins and triplets were not penalised – was introduced in 2017.

In April, research funded by the Nuffield Foundation found that the numbers of third and subsequent children born to poorer families had barely fallen. But the two-child limit had become the biggest single driver of child poverty, depriving three-child families of £250 a month, or £3,000 a year.

Sayeeda is a single mother who lives in South Yorkshire. I was put in touch with her by the Benefit Changes and Larger Families project, which tracks the impact of the two-child limit and the benefit cap. Sayeeda receives about £1,600 a month in benefits, including just over £500 for two of her three kids (aged 13, 11 and two). Once her bills and rent are paid, the family has about £20 a day to live on.

“Every month is a battle,” she says. “I’m always in some form of debt, just to tide me over.” She is in debt to her gas and electricity suppliers. When we speak, she has just been hit with a £300 fine for driving a borrowed car while uninsured: “We probably wouldn’t eat for the next month if I paid that all in one go.”

If she got another £250 for her third child, she says, things might be manageable. “It would take a lot of stress off my head. I wouldn’t constantly be worrying about feeding my kids. I could just buy a few more things without thinking about the cost all the time. I have to make sure that every penny is accounted for.”

Flatlined wages

After the crash of 2008, the UK became a byword for stagnant pay. Why this happened is unclear, but low productivity is part of the explanation, along with employees’ weak bargaining power and the growth of insecure, low-paid work. But the facts are stark: between 1992 and 2008, real wages went up by 36%; for 2008 to 2024, the Office for Budget Responsibility expects a rise of just 2.4%.

As far as the 5.7 million people in the public sector are concerned, the fact that wages have failed to keep pace with prices has been a deliberate policy. In 2009, Labour capped public-sector pay rises at 1% for two years from 2011; a year later, Osborne froze public-sector salaries for two years, then capped any rises at 1% or an average of 1%, a policy that came to an end only in 2017. Sunak introduced another year-long freeze in November 2020, for public sector workers outside the NHS. All this fed into a growing issue for teachers, police, firefighters, jobcentre staff and the rest. Recent figures show that the median public sector pay award was a mere 1.4% in the year to March 2022 (in the private sector, the figure was 2.2%).

The end of the universal credit uplift

On 20 March 2020, Rishi Sunak announced that the government was raising universal credit’s “standard allowance” by £1,000 a year, which meant a £20-a-week increase. “When people started to receive it, they said how much of a difference it made,” says CPAG’s Garnham. “On that level of income, small amounts of money make a massive difference.” This increase was not granted to the 1.4 million people estimated to be on the “legacy” benefits that universal credit is replacing, about 75% of whom are disabled.

In October, despite a huge campaign, the “uplift” was brought to an end, a move that the thinktank the Legatum Institute said would push another 840,000 people into poverty, 290,000 of whom were children. Lils, a mum of two whom I met recently in Plymouth, told me that it had a dire effect. “It was like giving someone something to eat and then snatching half of it away,” she said. “To me, that money was an extra £20 on the electric.” The government’s new help for poor households may be a big move, but it simply puts people like Lils back to where they were before the “uplift” was ended.

The benefits increase of 3%

In April, year-on-year inflation hit 9%. That month, benefits were “uprated” by only 3.1%, a figure based on the inflation rate in the year to September 2021. Next year, benefits will rise by a much larger figure, but that is cold comfort for millions of people as they struggle to make it through another 12 months. Note that nothing the government has announced gets near the uplift that families who need benefits would experience if their payments were increased in line with price rises.

“Basically, what we’ve gone through is a massive squeeze on low-income families, followed by a cost of living hike,” says Garnham. “You can’t understand the impact of one without the other.” Those two stories have had a huge impact on the lives of millions of people, but what of the politicians whose ideas and policies defined so much of what happened after 2010?

Cameron was last in the headlines for hustling for government contracts on behalf of a now defunct finance company reckoned to have paid him about £7m. Clegg has his very lucrative gig at Meta, the company that used to be called Facebook; his annual salary has been put at about £2.7m, while his recent promotion brought him a stock package reckoned to be worth £9.4m. Osborne, meanwhile, has a full-time job at a “boutique investment bank” in Mayfair called Robey Warshaw, where, in 2021, the highest-earning “partner” was paid the best part of £20m.

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