Poorest households could lose more than £5,000 in benefits after Brexit

 
Jake Cordell
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Depending on whether the government sticks to its fiscal charter, some households could lose £5,000 in welfare payments after Brexit, Niesr has predicted
Depending on whether the government sticks to its fiscal charter, some households could lose £5,000 in welfare payments after Brexit, Niesr has predicted (Source: Getty)

A vote to leave the European Union could result in some of the poorest households in the UK losing up to £5,542 a year in tax credits and welfare payments in a worst-case scenario.

The National Institute of Economic and Social Research (Niesr) has calculated the likely impact of a vote to leave the EU on the public finances and assessed how the government would have to make up the shortfall in terms of spending cuts and tax rises.

Taking the median prediction of a number of economic forecasts, Niesr estimates that the fiscal deficit will be 2.35 per cent larger by 2020 if the UK votes to leave the EU that it otherwise would be.

If a post-Brexit government chooses to stick to its fiscal charter, which requires public sector net debt to fall as a share of GDP from 2019 onwards, it could result in welfare cuts worth thousands of pounds.

Read more: Economists for Brexit outraged by IFS predictions

The assumptions behind Niesr's calculations have been criticised by Brexit-backing economists, who questioned a similar study by the Institute for Fiscal Studies which warned of a £40bn black hole.

"It is disappointing that Niesr reiterates the Chancellor's economic mantra and Brexit fears," Gerard Lyons, a former economic adviser to Boris Johnson said.

"In contrast, the best way to improve the UK's economic and budgetary outlook and to boost living standards is a sensible longer-term growth policy for the economy with Brexit and reinforced by a focus on innovation, infrastructure and investment."

Burden of fiscal adjustment made up by welfare cuts

Single

No children

Single

No children

Disabled

Couple

No children

Couple

One child

Couple

Two children

Single

One child

Single

Two children

Single

No children

Unemployed

25 per cent £600 £1,096 £465 £921 £1,211 £1,146 £1,386 £558
50 per cent £1,200 £2,192 £930 £1,842 £2,422 £2,291 £2,771 £1,116
75 per cent £1,800 £3,289 £1,396 £2,763 £3,633 £3,437 £4,157 £1,674
100 per cent £2,400 £4,385 £1,861 £3,684 £4,844 £4,582 £5,542 £2,232

Niesr calculations showing the estimated annual fall in the tax credit and benefit receipts of different classes of low income households in 2020 due to the macroeconomic and migration effects of Brexit on the UK fiscal position

Without breaking that rule, or raising taxes, a low-income single working-age parent with two children would lose £5,542 in tax credits and other benefits. A couple of working age on low incomes with no children would lose £1,861.

The government could, of course, choose a different set of policies that would neuter the impact on low income households. Even if only one-quarter of the savings required to make up the deficit came through welfare cuts, however, Niesr predicts the worst affected households would still lose out by £1,386 a year.

Read more: Kofi Annan backs Remain

Katerina Lisenkova, research fellow at Niesr who conducted the study, said: "Our analysis shows that low income households could lose in two ways: their share of the loss of national income plus lower welfare payments in order to meet the spirit of the fiscal charter.

"The effect on low income families is likely to be large."

Yvette Cooper, Remain campaigner and former secretary of state for work and pensions said the report showed "hardworking families would be hit hardest by the pain of leaving Europe".

Vote Leave, however, dismissed the findings: "This is yet another report from a former supporter of the euro masquerading as new research that is simply recycling and repackaging previous reports. That means the same dodgy assumptions of Establishment economists and the Treasury underpin the findings."

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