Brexit and benefits: the impact on areas of low income and high unemployment

In this post, Ruth Cain from the University of Kent focuses on the impact of Brexit on some of the poorest and most vulnerable communities in the UK.

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One week after Britain’s majority vote to leave the European Union, the legal and political consequences of the referendum remain unclear. We do not yet know when (or even if) Article 50 of the Lisbon Treaty, which triggers the minimum two-year period of negotiations on the terms of Brexit, will be activated, since the still-incumbent Prime Minister, David Cameron, has refused to start the process. Economic shockwaves have already been felt across world markets and the pound has fallen substantially. The vote has also brought home some of the acute dissatisfaction of those whose voices are rarely heard in political forums.

In this post I explore what Brexit may mean for some of the people who were most likely to vote for it: residents of Britain’s poorest and most deprived areas, some of which receive significant amounts of EU development funding due to their low per capita GDP (Wales, Cornwall, and the North and East of England).  Multiple arguments are being proffered as to why the post-industrial  areas of Britain voted out, apparently volunteering to deepen the deprivation they disproportionately endure. It seems that handing out money for ‘development’ has not endeared the EU to depressed areas: handouts cannot compensate for lost economic independence and autonomy, and may even enhance perceptions of exclusion from decision-making by distant elites. Britain’s first-past-the-post election system may also be partly to blame: the North East, North West and Wales are core Labour areas whose votes have been effectively  ‘wasted’ in the last 2 general elections.

Popular dissatisfaction with political ‘elites’ is not simply a British issue. Bernie Sanders, in an op-ed for the New York Times, warns that Brexit is a manifestation of wider dissatisfactions with neoliberal hyperaccumulation and inequality: ‘the global economy is not working for the majority of people in our country and the world.’ Fear of ‘foreigners’ and imagery of an inundation of immigrants is being marshalled by the Right on both sides of the Atlantic to channel anxiety and alienation in those who feel left behind in an increasingly unequal world; but some of the fears of Leavers focus on issues harder to dismiss as ‘prejudice’.  The brutalities and divisiveness of unchecked neoliberalism have engendered mistrust of  ‘metropolitan’ populations who are apparently doing better within unequal economies,  perceptions of an ‘undemocratic’ centralisation of power, and a sense that things can’t get any worse.

But perhaps they can. The UK had a massive balance of payments deficit before Brexit, and wage growth in particular has been sluggish since the financial crash of 2008. Amid what looks very like the beginnings of a recession, Chancellor George Osborne has abandoned plans for a budget surplus in 2020. Thus, immediate austerity measures may be softened, but they will be extended further into the future. The post-Brexit recession is expected to involve withdrawals of capital investment and jobs alongside increasing inflation.  Higher prices due to inflation, potential import tariff increases and a depressed pound will increase financial pressures on the same families who may be exposed to prolonged cuts in tax credits, benefits and wages. House prices are, however, likely to fall- which some families, trapped in high- rent accommodation or unable to buy at current inflated prices, would no doubt welcome.

Leave-voting areas tend to be poorer, and maps of Brexit voting patterns show considerable overlap between a high vote for Brexit and high receipt of out-of-work benefits and tax credits, mostly paid to working families ( Universal Credit, now rolling out across the UK, combines most benefit and tax credit payments). Poorer parts of London, which mostly voted Remain, are the notable exceptions to this rule. High levels of benefit claim in London are influenced by the larger size and younger average age of city dwelling families, and also illustrate the very high costs of living in Britain’s most affluent (and unequal ) ‘metropolitan’ area.

Deepening austerity for benefit claimants and young families

Deepening inequalities between younger households on lower incomes, particularly with children (whether working or not) and childless households, particularly older households, look set to become more starkly apparent in the post-Brexit years. Where calculations of benefit receipt include state pensions, affluent areas such as the Isle of Wight and Holborn enter the top ten. This perhaps surprising picture of high state ‘handouts’ is illustrative of intergenerational inequalities in the pre-Brexit impact of austerity. Following a 2010 Coalition Government pledge, state pensions are protected by a ‘triple lock’ –rising annually by the higher of inflation, earnings growth or 2.5%. Due to combined low inflation and low wage growth, this has meant that pensions are now higher than working household incomes once household size and housing costs are taken into account. Budgeted cuts since the financial crisis of 2008 have fallen disproportionately on working-age households and younger people. Given that older people voted overwhelmingly for Brexit and also tend to vote Conservative, post-Brexit cuts may be distributed similarly in future budgets.

Austerity has already profoundly affected the UK benefit and tax credit regime; benefits have been frozen, Universal Credit in-work payments cut, and caps on overall benefit receipt lowered.  A recent report by the National Institute  for Economic and Social Research predicts varying levels of impact on households depending on how much of the fiscal gap, enlarged by the costs of Brexit, is plugged through welfare cuts; if 100% of the costs are passed on to welfare recipients, a lone parent with two children (the hardest-hit family type in any scenario) could lose a whopping £5,582 per annum. Universal  Credit  already particularly punishes lone and young parents. The overall  impact of cuts to in-work and family benefits, including the restriction of child benefit to two children only from April 2017, will be felt primarily by lone parents, disabled parents and people under 30, who are currently bringing up or planning young families.  Since, as noted, urban areas (particularly London) house the highest concentration of young families, the impact on populations in larger cities looks set to be considerable. As noted, deprived areas, both urban and rural, where per capita GDP and employment are already suppressed are also likely to suffer disproportionately from post-Brexit  cuts.

A post-Brexit recession combined with rising prices thus looks set to have a potentially devastating impact on young people and families, particularly in the deprived communities whose ‘howl of rage’ against the status quo has just rocked the nation. With austerity now set to continue into the 2020s, disillusioned poorer voters who wanted change may find themselves (and the rest of the UK) paying a price for it that they cannot afford.


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