PM and Chancellor must end anxiety of millions over universal credit, pensions and benefits

CPI inflation increased by 10.1 per cent in September – driven by surging food prices – which should prompt a significant increase in benefits next April that will help to support families through the ongoing cost-of-living crisis, the Resolution Foundation said today (Wednesday).

The Foundation notes that inflation in September was driven by rising food prices, which are rising at their fastest rate since 1989, and partially offset by falling petrol prices (which have since stabilised). While producer price inflation (PPI) for goods is falling, the acceleration of servicesPPI (from 5.4 to 6.6 per cent)is a concern as these price pressures do not look related to rising energy costs, and may instead reflect more persistent inflation.

Today’s inflation data is important as it would ordinarily be used to uprate benefits and state pensions next April. Doing so is particularly crucial in the context of the ongoing cost-of-living crisis, with household income set to fall fast again next year even with higher benefit support.

The Foundation notes that existing energy bills support – including lump sum payments, the £400 energy bills rebate and the Energy Price Guarantee – is all due to expire next April at a time when energy bills could effectively double to around £4,000, and pay packets will still be shrinking. In these tough times, millions of families will need a stronger safety net to help them through.

However, the Government is reportedly considering uprating benefits by earnings rather than prices (a 5.5 per cent rise, compared to 10.1 per cent) as a way to cut public spending.

The Foundation notes that this would save £5.6 billion next year if applied to pensioner benefits (State Pension and Pension Credit) and a further £2.4 billion if applied to ‘unprotected’ working-age benefits (including Universal Credit but excluding Disability Living Allowance and Personal Independence Payments).

The cost of this uprating cut to families would be stark. A single disabled adult on Universal Credit would lose £380, while a working single parent with one child would lose £478, and a working couple with three children would lose £978.

Sector Response

Chancellor of the Exchequer, Jeremy Hunt said:

“I understand that families across the country are struggling with rising prices and higher energy bills.

“This government will prioritise help for the most vulnerable while delivering wider economic stability and driving long-term growth that will help everyone.

“We have acted decisively to protect households and businesses from significant rises in their energy bills this winter, with the government’s energy price guarantee holding down peak inflation.”  

Jack Leslie, Senior Economist at the Resolution Foundation, said:

“Surging food prices have driven a return to double-digit inflation across Britain and high inflation looks set to stay with us for some time too, with accelerating services producer price inflation and the early end of the Energy Price Guarantee likely to put upward pressure on consumer prices next year.

“This bleak outlook means that family incomes will continue to fall sharply again next year, especially as support with energy bills is withdrawn.

“That is the context of debates within Government about whether previous commitments to uprate benefits or pensions in line with prices should be the next U-turn to be announced. While the significant Treasury savings may look tempting in the context of its attempts to fill its fiscal hole, the cost to ten million working age families and almost every pensioner would be huge amid the deepest cost of living crisis for half a century.”

Rebecca McDonald, Chief Economist for the Joseph Rowntree Foundation said:

“The Chancellor has pledged to protect the most vulnerable and promised to act with compassion. With inflation running at over ten per cent, he could and should confirm today that the government will uprate benefits in line with this figure to ensure that the incomes of the poorest do not fall because of a Government decision. The Government should bring the increases forward to provide reassurance as soon as possible over the winter.

“The cost of living has millions fearing for the future, with the price of food rising faster than at any point since 1980. Any certainty they once had is now in jeopardy. This Government surely cannot wish to be remembered for withholding either cash or stability from families when the basic rate of benefits is already at its lowest in real terms for 40 years – and prices are bringing fear and alarm to millions. The majority of the public believe that benefits need to be uprated in line with inflation.

“It is morally indefensible that the government should still be considering leaving people with even less ability to pay for what they need, when their own party pledged to make sure the value of benefits keeps up with prices only months ago. The Chancellor has it in his power to assuage the fears of millions, by confirming today that benefits will be uprated in full and ahead of April.”

TUC General Secretary Frances O’Grady said:

“With inflation still running high, the government must make sure that every family can afford to put food on the table and keep warm this winter.

“But millions of people are already skipping meals and turning off the heating. Yet the Prime Minister and Chancellor still refuse to confirm that universal credit, pensions and benefits will keep up with inflation.

“It is no wonder so many working people are seeking higher wages and taking action to win fair pay deals.”

Cost of living poll

The inflation figures follow the publication today by the TUC of a major new poll showing the impact of the cost of living emergency on people.

The findings of the poll include:

• 1 in 7 (14%) people across the UK are having to skip meals or go without food to make ends meet.
• Over half (55%) of the population are cutting back on heating, hot water or electricity.
• 1 in 12 (8%) of those polled report missing a payment of a household bill.
• Nearly 7 in 10 (68%) people back raising the minimum wage to £15 an hour.

Further figures from the poll are here: www.tuc.org.uk/news/1-7-skipping-meals-and-going-without-food-tuc-mega-poll-reveals

Action needed on cost of living and threat of recession

The TUC says that to protect families from the surging cost of living, and to protect against a spending slump causing a steeper slide into recession, the government must:

• Stick to plans to uprate universal credit, benefits and pensions in line with inflation, and bring forward this uprating to before April. This must be the first step on a route to higher levels of universal credit, benefits and pensions.
• Impose a much higher windfall tax on oil and gas companies.
• Get pay rising across the economy by backing trade unions and allowing unions to negotiate pay rises across whole sectors.
• Give key workers in the public sector cost-of-living proofed pay rises.
• Raise the minimum wage to £15 an hour as soon as possible.

Joshua Raymond, Director at online investment platform XTB.com comments:

“UK inflation rose faster than expected to 10.1% in September against market expectations of 10%. The largest contribution to this rise in inflation comes from food and non-alcoholic beverages, which jumped from 13.1% in August to 14.6% in September. This marks the fourteenth consecutive monthly rise in annual food inflation, with prices continuing to grow at an alarming pace. This spells yet more trouble for families who face their weekly grocery shop becoming more expensive with each passing month and with mortgage rates rising at their fastest pace in years, the cost of living crisis is well and truly entrenched in the UK economy.

Perhaps equally troubling is core inflation, which strips out food and energy prices and also rose faster than expected to 6.5%. This shows inflationary pressures remain broad and deep. The Bank of England expects inflation to top out at 11% in the coming months, yet these reports may show there is further room for inflation to grow above this, especially given the weakness of the pound compared to its historical value.

This adds yet more pressure on the Bank of England to raise interest rates faster and harder when it meets early next month. This reading likely locks in a minimum 1% hike in the next MPC meeting.”