Benefits to increase more than expected next April
Most state benefits will rise by 3.8 per cent next year in line with September’s rate of inflation, exceeding earlier predictions by the Treasury watchdog.
September’s CPI inflation figures are used to calculate the increase to many welfare bills which take effect next April, including universal credit and personal independence payments (Pips).
The rise is likely to cost the Treasury more than expected given inflation is nearly twice the Bank of England’s two per cent target rate and higher than forecasts set by the Office for Budget Responsibility.
But some slight reprieve for the Chancellor may come given more recent forecasts stated inflation would hit four per cent in the year to September.
CPI inflation stood at 3.8 per cent for the third month running in September, according to figures published on Wednesday morning.
The Department of Work and Pensions (DWP) is expected to increase universal credit by this inflation rate plus a further 2.3 per cent.
The DWP is legally required to hike nine further benefit payments in line with inflation. These include Pips, carer’s allowance, additional state pension, incapacity benefit, attendance allowance, disability living allowance, severe disablement allowance, industrial injuries benefit, and guardian’s allowance.
Benefit rise will be ‘gingerly welcomed’ by Reeves
Danni Hewson, head of financial analysis at investment platform AJ Bell, said: “For the Chancellor these figures should be gingerly welcomed.
“It means benefits will likely be uprated next April by slightly less than had been expected and the cost of servicing all that debt will also be impacted by cooler inflation and the potential of further interest rate cuts.
“But 3.8 per cent is still uncomfortably high after the past few years and inflation has proved incredibly sticky in the UK compared to other G7 countries.”
The Resolution Foundation estimates that this will mean an increase in the standard allowance of at least 6.2 per cent.
The left-leaning think tank added this will be worth nearly £6 per week to each single adult aged 25.
The inflation figure is higher than the 2025 average of 3.2 per cent forecast by the OBR in March, and higher still than the 2.6 per cent average it predicted last year, meaning that the watchdog will have to factor these hikes to welfare into its pre-budget forecast.
Fresh inflation figures also confirm that, due to the triple lock, the state pension will increase in line with wage growth, at 4.8 per cent.
The IFS has said that the triple lock brings “uncertainty” to public finances and should be dropped. The think tank Policy Exchange has also called for the measure to be abandoned.
Less than a third (29 per cent) of Brits expect the triple lock to still be in place by the time they retire, according to a survey by pensions company Standard Life.
Half of people worry that they won’t have enough to find their full retirement, while 47 per cent feel retirement finances are mainly outside of their control.