Millions of benefits claimants face a real-terms squeeze on their incomes next year under plans being considered by ministers.
In a break with convention, the Treasury has put forward cost-cutting proposals to raise benefits by less than the rate of inflation next year.
September’s Consumer Price Index, which is normally used to set the following year’s benefits level, yesterday put year-on-year price rises at 6.7 per cent. But with inflation predicted to fall sharply by the time the increase is due to come into force next April, some ministers are pushing for benefits to be raised by significantly less.
Treasury minister Andrew Griffith declined to say whether benefits would rise by 6.7 per cent next year, saying ministers would have to ‘assess’ the situation before making ‘recommendations about what to do with public benefits’.
He told Sky News: ‘That process is yet to happen. It wouldn’t be right to come out immediately after the figures. Last year, as you will remember, we increased benefits by 10 per cent to protect people, one of the largest ever increases in that.’
Treasury minister Andrew Griffith (pictured) declined to say whether benefits would rise by 6.7 per cent next year, saying ministers would have to ‘assess’ the situation before making ‘recommendations about what to do with public benefits’
Downing Street said Rishi Sunak (pictured) remained ‘committed’ to the mechanism, which guarantees that the state pension will rise in line with whichever is highest – earnings, inflation or 2.5 per cent
Liz Truss triggered a Tory backlash last year when she proposed raising benefits by less than the rate of inflation.
The plan was abandoned when Rishi Sunak succeeded her, leading to a 10 per cent hike in benefit rates.
Several current Cabinet ministers joined last year’s rebellion, including Work and Pensions Secretary Mel Stride, Commons Leader Penny Mordaunt and Levelling-Up Secretary Michael Gove.
But a senior Tory figure predicted they might be more willing to accept a squeeze on benefits this year.
‘I think what you saw last year was more about opposition to Liz than some ideological commitment to always increasing benefits in line with inflation,’ the source said.
‘You will not necessarily see those people taking the same position this year.’ A source close to Mr Stride declined to say whether he was committed to raising benefits in line with inflation, saying only that ‘he will review it all in the usual way’.
Ministers are looking at a range of cost-cutting options. Increasing benefits by half the rate of inflation would save the taxpayer around £2billion.
A further £1billion could be saved by stripping out bonuses from the average earnings figures used to calculate the pension triple lock, giving recipients of the state pension a rise of 7.5 per cent rather than 8.5.
Liz Truss (pictured) triggered a Tory backlash last year when she proposed raising benefits by less than the rate of inflation. The plan was abandoned when Rishi Sunak succeeded her, leading to a 10 per cent hike in benefit rates
The Resolution Foundation think-tank has forecast that freezing benefit rates next year would save the Treasury £4.2billion. But it said the move would also ‘drive up inequality’, hit the incomes of nine million people and potentially push 400,000 children into poverty.
One source familiar with the discussions in government said a total freeze was unlikely – but confirmed that ‘live discussions’ are taking place about whether to raise benefits by less than the headline rate of inflation.
The source stressed that many of those in receipt of benefit payments had also enjoyed one-off cost-of-living payments, as well as substantial help with their energy bills. Ministers are also considering whether to trim a bumper rise in the state pension by adjusting the figures used to calculate the triple lock.
Downing Street said Rishi Sunak remained ‘committed’ to the mechanism, which guarantees that the state pension will rise in line with whichever is highest – earnings, inflation or 2.5 per cent.
But sources confirmed that the Treasury is considering proposals to reduce the 8.5 per cent average earnings figure used by stripping out the value of one-off bonuses.
The proposal could reduce the increase to 7.5 per cent, costing pensioners £2 a week, but saving the Treasury £1billion a year.
The talks come as Chancellor Jeremy Hunt battles to balance public finances hit by a £30billion-a-year jump in borrowing costs in next month’s Autumn Statement – and free up cash for tax cuts before the next election.
Children’s charities have asked Mr Hunt to help families whose finances are being ‘pushed to the brink’.
In a joint letter, Save the Children, the Trussell Trust, The Joseph Rowntree Foundation, Action for Children, Citizen’s Advice and The Children’s Society urged the Chancellor to ‘do the right thing’ by uprating benefits at least in line with September’s inflation figure.
