Campaign – the Benefits Price Index

Wed, 28/03/2012 - 16:44 -- nick

The Challenge

To take account of inflation, and to ensure that benefit recipients do not have the value of their income reduced by increases in the cost of living, all benefits are uprated by the level of the Consumer Price Index (CPI) each year. The CPI is designed to be a measure of the increase in the cost of living for the average consumer each year, and lists the prices of a wide range of goods and services. The Retail Price Index (RPI) uses most of the same goods and services but includes housing costs.

In 2011, for the first time, benefits were increased by the amount of the CPI rather than the higher RPI, following a change by the coalition government. The exclusion of housing costs from this measure appears to be reasonable, as housing benefit or mortgage interest payments are made separately to benefits, although the restrictions on housing benefit have made for a large reduction in the overall funding available to pay housing costs for unemployed, economically inactive and low income people.

The link to CPI (and the previous link to RPI) means the level of benefits payments are linked to a number of expenditure items that unemployed people, state pensioners, those on disability and employment support benefits, and those on income support are very unlikely to be able to afford, including air fares, private health treatment, restaurant meals, hotels, and new cars, as well as items that are likely to be a very rare buy, like second hand cars, sea travel, audio visual equipment, package holidays, and jewellery, clocks and watches.

The CPI currently stands at 3.4% (February 2012, http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/february-2012/i...), down from 3.6% in January. Some of the items that contributed to this change, as given in the Office for National Statistics’ Statistical Bulletin, show why this is an inappropriate measure for benefit recipients:

- Photographic, cinematographic & optical equipment prices fell by 9.4%

- Sea fares rose by 10.3% this year

- Restaurants and hotels, with the largest downward effect coming from restaurants and cafes where prices rose by less than a year ago

The overall rate of the CPI, and therefore the rate of benefits, is currently being pulled up and down by big movements in the prices of items that unemployed people do not buy. The February report states that the CPI excluding energy, food, alcohol and tobacco (this is a joint category as given in the CPI report, with a higher weighting for food and energy) is running at 2.4%, lower than the overall rate.

However, at times in the past falling prices for luxury goods have dragged the CPI and RPI down, reducing the level of benefits payable even where no benefit recipient is able to buy the goods involved. Also, big increases in energy or food prices (such as the increase in gas prices of 13% in August 2011 http://www.uswitch.com/news/utilities/inflation-at-52-per-cent-due-to-en...) are not fully reflected in the CPI rate as home energy costs make up only 5.6% of the CPI but are likely to make up a far greater proportion of benefit recipients’ spending.

The DECC Fuel Poverty Report 2011 (http://www.decc.gov.uk/assets/decc/Statistics/fuelpoverty/2181-annual-re...) states that in 2009, the number of fuel-poor households in the UK was estimated at around 5.5 million, representing approximately 21 per cent of all UK households. The majority of these households are likely to include benefit recipients, and the huge increases in energy prices need to be reflected in benefit payments.

The Campaign

Although Unemployed Net campaigns for benefits to be paid at a higher level, reflecting the real needs of recipients, the BPI campaign is aimed primarily at ensuring that unemployed and economically inactive people receive the right level of annual increase in benefits. This centres on two things.

Firstly, in recognition of the narrow list of items that benefit recipients buy (primarily food, clothing, public transport fares, rent, and fuel/energy), Unemployed Net is campaigning for a specific Benefits Price Index, or BPI, to be created with benefits increased annually by this amount. This will ensure that people who receive benefits can afford to buy the same amount of the things they usually buy each year, keeping the value of their income at the same level.

The specific make-up of the proposed BPI and the weighting of items within it will be decided over the course of this campaign by Unemployed Net’s users, who are encouraged to email in with a breakdown of their average weekly shop. Unemployed Net will consult more directly with a smaller number of site users to get in-depth information about the spending patterns of benefit recipients, and through these two processes will make a recommendation to government on the items to be included in the BPI and the appropriate weighting.

Secondly, in recognition of the volatility of some prices, particularly for gas and electricity which form such a large part of benefit recipients’ spending, the annual increase in benefits should be based on the average inflation rate in the UK over the previous year, not the rate as it stands in September of the previous year (the current system). Big spikes or drops in inflation in that month should not be allowed to have such a large effect on benefit payments for the next year.

The campaign method includes asking Unemployed Net site users to sign up to the campaign and lobby their MPs for a change in the method of uprating benefits. This is an administrative change so should not require a legislative process (the change from RPI to CPI did not require a new law), and for this reason should be achievable.

The Evidence

Government statistics currently measure inflation across a range of goods and services. It would be a very easy process to pick the items that benefit recipients actually buy, and very easy for those items to be weighted so the major items (food and energy costs) that make up the majority of spend would make up the majority of the BPI.

The fuel poverty issue detailed above is key to this campaign. As an example, the average 2011 gas bill rose by £62 (9.4 per cent), compared to 2010, to £720. However, the cost of living increase in benefits for 2011 was 5.2%, meaning benefit payments fell behind the needs of recipients. The weighting of elements in the CPI (what proportion of the CPI is made up of each item) is also an issue.

The low weighting of energy costs within the CPI reflects the spending of the average consumer in the UK, but those on benefits spend a much higher proportion of their income on energy, due partly to low income and partly to the fact that benefit recipients spend a higher proportion of their time at home. While at home energy is needed for heating, light, cooking and other elements that would, were the householder at work, be paid by their employer.

Food is the other main area that takes a much higher proportion of benefit recipients’ spending than the average consumer’s. In 2011 food prices rose slightly more than the CPI but they are likely to increase further in the next few years according to a 2011 report - http://www.independent.co.uk/life-style/food-and-drink/news/food-inflati.... The report suggests that food prices are likely to increase above the rate of inflation for the next 40 years, further eroding the real value of benefits.

Join Us

The most important part of this campaign is for Unemployed Net’s users to sign up to and comment on it. To register your interest please leave a comment below.

Please note that your first comment will be counted as support for the campaign unless you tell us in the email that you do not want to be counted in this way. We will release details of the number of people who sign up to the campaign, and aim to build pressure on politicians through weight of numbers. The more of us that sign up, the more power we can bring to discussions with politicians and the more likely it is that we can get these changes made.

We would also like you to email a breakdown of your weekly spending, broken down in to categories. Please remember, the food category should not include alcoholic drinks, tobacco or meals out. These emails can be sent to:

nick@unemployednet.org

The second part of your potential involvement is also important. If you want to become more involved please contact your local MP and ask them to consider campaigning for these changes.

Find your local MP and their email address here:

http://www.theyworkforyou.com/

Please let us know what you have done and who you have contacted through the comments section below and we will publicise your efforts.

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