Chancellor stated benefits would be uprated by September's CPI

In May 2022, Rishi Sunak, then Chancellor, told the House that benefits would be uprated by that September's consumer prices index (CPI), subject to the Secretary of State's review¹. The Resolution Foundation, an independent research organisation, set out the commitment and its context in a paper published on 13 October 2022¹.

The paper states that the commitment is "the usual custom and practice", and that it is the assumption used by the Office for Budget Responsibility when it makes its fiscal projections¹. It also reports that the Government was considering how it might cut spending to offset the impact of tax cuts on the public finances, and that one option discussed was raising some benefits in line with earnings rather than inflation the following April¹.

The paper sets out what uprating by earnings growth of 5.5 per cent, rather than CPI inflation of around 10.1 per cent, would mean. It estimates that affected benefits would be 4.2 per cent lower in 2023-24 than under inflation uprating, and would remain permanently lower in future years¹. It puts the saving at around £3 billion a year in 2026-27 if the State Pension, Pension Credit and legislatively protected benefits were increased in line with prices while others were uprated by earnings, or around £5 billion a year if all working-age benefits were uprated with earnings, which it says would require primary legislation¹.

The paper estimates losses for different family types compared with inflation uprating¹:

It estimates that 9 million households, containing 30 million people, would face an income loss, of which 7 million households contain someone in work, and that 3 million households would face an annual loss of over £500¹. It adds that 74 per cent of couples with children and 95 per cent of single parents would face income losses, and that half of working-age households in the North East, North West, Yorkshire and West Midlands would lose out¹.

Why it matters for households

The commitment covered the uprating that takes effect each April, and the paper says the decision for 2023 had to be made shortly after its October 2022 publication¹. Benefit rates are normally set by reference to the previous September's inflation figure, so the September 2022 CPI figure is the one that would determine the April 2023 increase under the stated approach¹.

The paper notes that some benefits must rise with prices at least, including Personal Independence Payment, Disability Living Allowance, Attendance Allowance, Incapacity Benefit, Severe Disablement Allowance, Industrial Injuries Benefit, Carer's Allowance, Additional State Pension and Guardian's Allowance, and that changing this would require primary legislation¹. It also notes that some parts of the system are already permanently frozen by default, chiefly Local Housing Allowance rates for Housing Benefit and Universal Credit, the benefit cap levels, and Winter Fuel Payments¹.

On the paper's projections, even if all benefits were uprated in line with inflation, the real disposable incomes of the poorest might fall by 11 per cent in 2023, which it describes as the biggest drop on record, and the fall would be 14 per cent if some benefits were indexed only to earnings¹. It projects that absolute poverty would rise by 2.9 million people between 2021-22 and 2023-24, with a real benefit cut adding another 600,000 people, including 300,000 children¹. It also states that the £400 Energy Bills Support Scheme will end in March¹.

What happens next

The paper says the Government was due to publish a Medium-Term Fiscal Plan on 31 October 2022, expected to set out how it would get debt falling as a percentage of GDP¹. It refers to the announcement of £45 billion a year of tax cuts in The Growth Plan, of which £2 billion had been cancelled, and to the associated increase in government borrowing costs¹. The paper states that the decision on 2023 uprating had to be made shortly after publication¹.