Posted: 09 March 2017

Budget 2017: As family budgets are squeezed, problem debt rises

Normally, each April – just after the Budget – low income families get a little more cash in their pocket, in order to ensure that the amount of support that they receive keeps pace with rising costs of living. But this won’t happen this year, nor next year, nor the year after that.

This is because we are in the middle of a four year 'benefit freeze’– which means that support for low income families won’t rise at all until the end of the decade.

Overall prices are expected to rise by 35% between 2010 and 2020

The impact of this isn’t felt by families facing a sudden drop in income – but instead, small and gradual increases in the price of bread, or the cost of energy, mean that over time families find the same money goes less and less far.

This doesn’t just affect non-working families – many benefits for working families (including some which are only paid to working families) are included in the freeze.

What’s happening to prices?

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Breathing space

Give young people in debt space to breathe

Inflation matters to families, particularly at the moment when benefits and Tax Credits are frozen.

This makes it all the more concerning that prices (as measured through the Retail Prices Index) are now rising rather faster than expected. Yesterday, the Office for Budget Responsibility renewed their inflation forecasts – where last Autumn they had expected prices to rise by 3.3% in 2017/18, the new forecast put this at more than half a percent higher, at 3.9%.

Overall prices are expected to rise by around 35% between 2010 and 2020.

In contrast Child Benefit, a key form of support for families with children, is expected to rise by just 2% over the course of the decade – just one eighteenth of the rate it would need to in order to keep up with costs of living.

the cost of living is rising much more quickly than child benefit increases, 2010 through 2020

Inflation data from the Office for Budget Responsibility

What’s the impact on families?

In April 2010, benefit income for an out of work single parent with 2 children (excluding housing costs) was around £198 per week.  In order to keep up with rises in costs of living by 2020, this would need to rise to around £267 per week.

Their actual 2020 income would be expected to be around £214 per week. The real loss of £53 per week will leave this family worse off by around £2800 per year.

Breathing Space infographics

It is deeply disappointing that the Chancellor did not choose to use the Budget to end the benefits freeze - to ensure that support for families keeps pace with rising living costs.

As families find it harder to make ends meet, more will find themselves at risk of falling into problem debt.

You can still support our proposals for a breathing space scheme, to make sure that these families receive the support that they need.

back the breathing space

By Sam Royston - Policy team
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