Tuesday, 18 September 2012

Benefits link to inflation could be cut

The government is considering ending the annual inflation-linked rise in benefits as part of the drive to find additional savings in the welfare budget, according to the BBC. If implemented, the move could be in place by 2014 with many benefits frozen for two years, then rising only in line with average pay. State pensions will not be affected as they are now protected by a "triple lock", which means they will rise annually in line with either inflation, earnings, or by 2.5%, whichever is the higher figure.

In recent years inflation has risen at a far higher rate than average earnings. Whitehall officials say a switch since 2008-9 would have saved £14bn, according to BBC Newsnight. The Department for Work and Pensions declined to comment on the reports ahead of the benefits uprating statement, which takes place in December. "Uprating of benefits will be considered by the secretary of state and chancellor as usual later this year," they said.

The government is looking for £10bn of extra savings in the welfare budget. However, any move to break the historic link between inflation and welfare payments is likely to provoke fury among charities representing vulnerable groups.

Reports of the move come just a year after a thwarted attempt by Chancellor George Osborne to end the annual inflation-linked increase to benefits after a welfare bill last September when inflation was 5.2%. One Whitehall source close to the process told the BBC that the idea was back on the table. "A freeze [to benefits] for a couple of years would help us get to the £10bn," they said.

Any move to freeze benefits is likely to be fiercely resisted by Liberal Democrats, many of whom oppose any further cuts to welfare and believe any further savings should be funded through tax rises at the top.

Hélène Mulholland, Guardian