Ministers are expected to make a decision on the Covid-19 top-up to Universal Credit by spring
Removing the £20 per week top-up to Universal Credit under Covid-19 would result in over three-quarters of a million people falling below the poverty line, a new study shows.
A report published earlier this week by political think tank Fabian Society found that 760,000 people would be pushed below the poverty line in the medium term should the temporary top-up be removed.
The increase to Universal Credit which totals just over £1,000 per year was introduced last year to ease financial pressures during the pandemic for 12 months until the end of March this year. MPs must now decide whether to uphold the increased allowance for another 12 months or return to the pre-pandemic level of benefits payments.
Even if we discount the societal cost and the additional strain on the healthcare system, this could also translate into a significant increase in claims, and of much higher value, within the protection space."
"After a decade of sustained cuts to social security this was a very welcome measure and has sustained millions of households with zero or low earnings through the pandemic. Ministers are planning for it to disappear just as the government's main unemployment-prevention measures also come to an end in April", the report says.
A final decision is expected to be announced within the UK Budget next month and the Commons Work and Pensions Committee has recommended that the higher rate of support should be maintained until at least April 2022.
Poverty line
Fabian Society's report found that of the 760,000 people that would be forced into poverty by removing the top-up. 87% of the cuts, representing £5.5 billion per year, will hit working or disabled households, while 95% of people pulled into poverty by the cuts (720,000 people) will live in working or disabled households.
Around half of the cuts (£3.2 billion) will fall on households where at least one adult is in work. A further 37% of the value of the cuts (£2.4 billion) will hit non-working households where at least one adult is disabled, the report states.
In total, 540,000 (71%) of the people falling into poverty live in families with children, 360,000 (47%) live in a household with at least one disabled adult, and 100,000 (13%) live in a household with a carer.
"Many people who are working or disabled will see a cut in their incomes of around £1,000 per year, even though in most cases there is no expectation that they should be seeking to work or to increase their earnings. This raises fundamental questions of justice and morality. The chancellor should cancel the cuts and place the 2020 increases on a permanent footing", the report recommends.
Changes to state support benefits such as Universal Credit will have a far-reaching impact on protection and health insurance advisers, and raises the issue of how access to cover is signposted by the industry.
Protection adviser and director of Plus Financial Group, Matt Chapman, tells COVER that its crucial that advisers remain knowledgeable to changes in the level of state support available to clients, not just to determine what financial assistance is available but to also "highlight the disparity between what both the client thinks they'll get compared to what they actually get."
"By understanding how little support is available to them we are able to identify the shortfall and how much additional financial support they need to support themselves, which can only be achieved through suitable protection and lifestyle insurances, such as income protection," Chapman says.
Signposting
Fabian Society's report comes on the heels of other data that highlights the levels of financial vulnerability across the UK. The Financial Conduct Authority's Financial Lives Survey, was published last week, which benchmarks nation's financial resilience, showed that more than half (52%) are in some sense considered vulnerable (27.7m).
Meanwhile, a report from the Women and Equalities Committee also Women and Equalities Committee report found that government support benefits arising from the Covid-19 pandemic are having a disproportionate impact on men and women, with policies "repeatedly skewed towards men".
As the consequences of Covid-19 continue to place greater financial pressures on state systems and resources, Chapman says that the true impact of the pandemic is yet to be seen in terms of its influence on issues such as mental health and severe delays in the diagnosis of, and lack of early intervention for, serious illness such as cancer.
As a result, signposting for access to insurance and protection cover available to people that would be affected by reductions to their state financial support has become an even more critical feature for advisers.
"Even if we discount the societal cost and the additional strain on the healthcare system, this could also translate into a significant increase in claims, and of much higher value, within the protection space. In turn, this could negatively impact both the cost of and accessibility of protection insurances which only strengthens the need to raise awareness of the importance of protection now rather than later," he explains.
"Seeing such changes to our benefits system only reinforces my belief that we have a societal responsibility to protect ourselves where we can to reduce our reliance on the state wherever possible. This can only be achieved through more people considering and taking our suitable financial protection. This, in turn, can only be achieved by more advisers being willing to have more protection conversations with their clients."
