How benefit levels are set

This briefing provides an overview of how social security benefit levels in the United Kingdom are set and ongoing debates around the extent to which they provide adequate support for households without sufficient resources of their own to meet essential needs.

The benefit levels we have today are not the result of any regular, systematic assessment of needs. Instead, they have emerged from successive rounds of welfare reform since the Second World War and, above all, choices made at periodic benefit upratings, compounding over time. 

Setting benefit levels

Benefit levels in the social security system introduced after the Second World War were initially set as a compromise between an estimation of what was considered necessary for “subsistence”, what the Government of the day believed it could afford, and existing benefit rates.

In the 1960s civil servants undertook two internal reviews of the adequacy of means-tested “National Assistance” benefit rates in recognition of the lack of an evidence base for policymaking. The reviews concluded that rates for adults in particular could not provide a satisfactory standard of living. The reviews were not published and resulted in minimal change. No Government since has attempted an empirical study of benefit adequacy.

Welfare reforms, such as the replacement of Supplementary Benefit with Income Support in the 1980s, and the introduction of Universal Credit in the 2010s, changed the principles and structures of the benefit system. They did not, however, dramatically change rates of payment compared to the benefits they replaced. Ministers during both reforms rejected the idea of setting benefits based on an objective assessment of needs.

The 1997-2010 Labour Government significantly increased the amount of benefit many households received, particularly those with children, through the introduction of tax credits and other measures. However, they also rejected proposals to link benefit levels to estimates of minimum needs, arguing there was no objective way to determine what constituted a minimum acceptable income.

Despite successive governments rejecting such an approach, independent researchers have attempted to determine “Minimum Income Standards”, which are regularly cited by those campaigning for increases to benefits. The most recent example of this is the project undertaken by the Centre for Research in Social Policy (CRSP) at Loughborough University, funded by the Joseph Rowntree Foundation, which has published “Minimum Income Standards for the UK” reports each year since 2008.

Benefit uprating

Most benefits are usually increased – “uprated” – each year, following a review carried out in the preceding Autumn to determine whether they have retained their value in relation to either prices or earnings. Approaches to uprating have varied between benefits, and over time. Although their effect in most individual years is undramatic, uprating decisions and rules compound, and have over time had a dramatic impact on the level and shape of benefit provision afforded by the social security system.

For example, more favourable treatment of the basic State Pension compared to Unemployment Benefit (and its successor, Jobseeker’s Allowance) over the past 50 years has meant that the former is paid at nearly twice the rate (£141.85 a week) of the latter (£77 a week), despite having been at the same level until 1973.

The practice of increasing benefits regularly in line with prices or earnings was first put on a statutory basis in the 1970s, and has evolved since then. Working-age benefits have generally been increased in line with prices, while State Pensions have received more favourable treatment – most recently with the “triple lock”, which ensures State Pensions rise at least in line with the highest of earnings, prices, or 2.5%. Different measures of prices have also been used.

Current practice is to uprate benefits by reference to year-to-September inflation figures (since 2011, the Consumer Prices Index), and annual earnings growth measured between May and July, in uprating orders coming into force in the following April. The explanation successive governments have given for this is that it takes several months to apply uprating through the various systems through which benefits operate.

Not all benefits are uprated each year. Over the past decade, a series of below-inflation increases and freezes were applied to working-age benefits. In addition, some elements are not uprated annually, and have therefore fallen (sometimes substantially) in real terms over time. These include the capital limits for means-tested benefits, and the “Christmas Bonus” available to certain claimants, which has remained £10 since 1972.

Recent debates on benefit rates

The economic impact of the coronavirus pandemic prompted the Government to increase the standard allowance of Universal Credit and the basic element of Working Tax Credit temporarily. This was interpreted by some think tanks and campaigning organisations as a tacit admission that benefit levels are too low. Those increases were later removed, promoting a further round of debate around adequacy of benefit provision.

Campaigners have also questioned uprating practices in light of the current cost of living squeeze – basing the April 2022 uprating on year-to-September 2021 inflation measures does not account for subsequent price rises. In March 2022, consumer prices as measured by the Consumer Prices Index (CPI) were 7% higher than the year before, and are forecast to rise still further, whereas in April 2022 inflation-linked benefits and tax credits rose by 3.1%.

The Government has not increased benefits beyond regular inflation linked uprating, but has introduced other temporary measures such as additional funding for the Household Support Fund to enable local authorities in England to support vulnerable households in meeting daily needs, such as food, clothing, and utilities.