Rising inflation piles pressure on benefits bill

The consumer prices index (CPI) inflation rate in September, which is used to determine next April’s rise in state benefits, rose from 4.5 per cent to 5.2 per cent, which equals the record high reached in September 2008, the Office for National Statistics (ONS) said.

Next year’s benefit rates are not formally unveiled until later this year, but the figures would mean the basic single state pension will increase by £5.31 to £107.46 a week, while the joint state pension will increase by £8.49 to £171.84.

Employment benefits such as Jobseeker’s Allowance (JSA) and income support are also calculated using the September CPI rate,

The higher than expected rise was driven by a jump in utility bills, as gas and electricity increased 13 per cent and 7.5 per cent respectively following price increases by major energy providers.

The increase in state benefits will put more pressure on Chancellor George Osborne, who is battling to slash the nation’s budget deficit, as unemployment hit a 17-year high of 2.57 million in the three months to August.

It will be the first time the uprating in benefits is calculated using CPI rather than the retail prices index (RPI) rate of inflation, which rose from 5.2 per cent to 5.6 per cent in September – the highest rate in 20 years.

The CPI inflation rate also underlines the increasing squeeze on household incomes after figures last week revealed weekly earnings grew at just 1.8 per cent. Housing, water, electricity, gas and other fuels increased 8.6 per cent, the highest increase in two-and-a-half years.

Downing Street confirmed that it was the usual procedure for September’s inflation rate to be used to determine the uprating of benefit and pension levels.

But the Prime Minister’s official spokesman said it was a decision for the Chancellor each year whether to apply this procedure. Mr Osborne is to deliver his autumn statement on November 29.

Prof Philip Booth, of the Institute of Economic Affairs, described this month’s increase in inflation as “particularly concerning”.

“This figure will be used to uprate benefits,” said Prof Booth. “The increases in benefits will put more pressure on Government borrowing and force more spending cuts or tax increases to compensate.”