Benefits rise to ‘barely touch sides’ of cost-of-living squeeze, experts warn

The fall in inflation is “badly timed” for some of the UK’s poorest households, with benefits set to be increased in line with the latest 1.7% rate.

Analysts said the inflation figure is set to go up over the coming months as energy prices increase, meaning the uprating in benefits from next April could be eroded by rising household costs.

But there is better news for older citizens, who are in line for an inflation-busting 4.1% increase in state pensions.

The Joseph Rowntree Foundation, which works on tackling poverty, said a 1.7% increase would mean the standard allowance basic rate of universal credit (UC) would rise by around £1.50 a week from its current level of £90.55, while the basic rate for couples would go up by around £2.50 a week from the current level of £145.13 a week.

The Resolution Foundation economic think tank, which focuses on living standards, said the changes will mean a typical low-income family with two children would see its annual UC award rise by £253 next April.

But if working-age benefits were uprated in line with October’s inflation figure rather than September’s, taking into account the new energy price cap increase which came into effect on October 1, the rate could be 2.2%, meaning the same family would see their UC award rise by £327 instead.

Consumer Prices Index

September’s Consumer Prices Index figure published by the Office for National Statistics was below the Bank of England’s 2% target for the first time since April 2021.

The Joseph Rowntree Foundation’s Iain Porter said: “The consequence of today’s rate of inflation is that April’s uprating will be worth just a few pounds to most people.

“The reality is millions of families can’t afford enough food this week, or to turn the heating on as the nights get colder – emphasised by the fact that food price inflation has risen for the first time since early last year.

“The basic rate of universal credit is so insufficient it fails to protect families from hardship, and this increase will barely touch the sides.”

Urgent action

He called for urgent action in the Budget on October 30 to support hard-pressed families, but Chancellor Rachel Reeves has warned her financial statement will include “difficult decisions on spending, welfare, and tax”.

Resolution Foundation economist Lalitha Try said: “There was a larger-than-expected fall in inflation last month, but it will rise sharply in October, driven by base effects from energy prices. This temporary fall is badly timed for millions of low- to middle-income families as it will result in a lower increase in their benefits next year.

“A more timely measure of benefit uprating would deliver a cash gain to a low-income family with kids of around £74 next year.

“The Government needs to address the age divide in benefits which has left working-age support fall further behind rising wages and living standards.”

The increase in state pensions will help compensate for the Government’s decision to strip winter fuel payments from all but the poorest households.

Pensions are governed by the “triple lock”, meaning they rise by 2.5%, inflation or average earnings, whichever is higher – in this case the earnings figure of around 4.1%.

A 4.1% rise would mean an increase of around £473 for the new state pension and £361 for the basic pension.

Pensioners

Helen Morrissey, head of retirement analysis at financial services firm Hargreaves Lansdown, said the inflation figure “spells good news for the battered budgets of pensioners who have struggled with soaring costs”.

“It’s also the final piece in this year’s state pension triple lock puzzle. As expected, inflation undershot average wages, putting pensioners on track for a 4.1% increase next April after wages figures were revised yesterday.”

Dean Butler, managing director for retail direct at Standard Life, part of Phoenix Group, said: “Inflation is back below the Bank of England’s 2% target and, unless the Chancellor makes a shock triple lock change at the Budget, we now know the state pension will rise by an inflation-busting 4.1% next spring in line with average earnings.

“This means that next year’s full new state pension is set to reach £11,975.60 annually, an increase of £473.”