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UK Energy Bill Support Contributing to Labor Shortages, MPs Say

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The UK government’s cost-of-living support for households struggling with sky-high energy bills may be contributing to labor shortages by discouraging people from seeking work, a panel of lawmakers said.

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(Bloomberg) — The UK government’s cost-of-living support for households struggling with sky-high energy bills may be contributing to labor shortages by discouraging people from seeking work, a panel of lawmakers said.

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By linking the support to means-tested benefits, households could lose the entire £900 payment scheduled for next year if they increase their hours, take on a job or agree a pay rise that pushes them just £1 over the threshold.

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To avoid such policy “cliff edges” and prevent families from falling through the cracks, a report from the Treasury Committee in the House of Commons recommended spreading the payments over six months.

A staggered payment would also improve fairness by catching people who lose their job after the assessment period so are declared ineligible for any help, the committee said.

Since the start of the pandemic in March 2020, there has been a jump in benefit claimants with work requirements, meaning welfare recipients must look for a job, and a steep rise in inactivity as people dropped out work.

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Britain is unique among the major advanced economies in that it has fewer people in employment than before the pandemic. 

“As winter draws in and temperatures drop, many will be worrying about the cost of their energy and heating bills,” saidHarriett Baldwin, chair of the Treasury Committee.

“Alongside the support already provided this year, the Chancellor has told us that further cost of living assistance will be available next winter to recipients of means-tested benefits. This runs the risk of creating perverse cliff-edges and eroding work incentives.”

Earlier this year, the government stepped-in to provide a financial safety-net to households, using the benefits system to determine target some of the support to those most in need. 

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Among other relief measures, a £650 cost of living payment to those on means tested benefits was provided for this winter, and that sum is due to increase to £900 over 2023–24. 

In his evidence to the committee, Carl Emmerson, deputy director of the Institute for Fiscal Studies, said other similar perverse incentives existed, as legal aid and free school meals are also subject to means testing.

Chancellor of the Exchequer Jeremy Hunt has said he planned to change the arrangement to a “social tariff” from April 2024 to reach “all people equally on low incomes.” Until the “complicated work” of setting up a social tariff is finished, the benefits system is the most effective way of disbursing the money, he told the committee.

“These potential work disincentive effects from one-off payments come at a time when the number of Universal Credit claimants with work requirements is higher than before the pandemic, and the government is considering obstacles to workforce participation,” the committee said.

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