Most but not all benefits are uprated in April each year, by reference to the increase in prices over the year to the previous September. The current Government has adopted the Consumer Prices Index (CPI) as the measure of inflation for uprating purposes. CPI tends to rise more slowly than the measures used. previously. The CPI for September 2011 was higher than expected, and media reports have suggested that the Government was considering changing the basis for uprating benefits. In the Autumn Statement the Chancellor announced that while benefits would increase by the full CPI from April 2011, the couple and lone parent elements of Working Tax Credit would be frozen and the child element of Child Tax Credit would increase by less than was planned.Jump to full report >>
Social security legislation requires the Secretary of State to review the level of certain benefits annually to determine whether they have retained their value relative to the general level of prices. Some benefits must be “uprated” at least in line with prices, while the basic State Pension and standard minimum guarantee in Pension Credit must be increased at least in line with earnings. The current Government has also said that the basic State Pension will be uprated by the highest of earnings, prices or 2.5% (the “triple guarantee”).
For other benefits – including Child Benefit, Income Support, Jobseeker’s Allowance and Housing Benefit – there is no statutory requirement to uprate. Historically however governments have exercised their discretion by increasing means-tested benefits in line with the “New Rossi index” (RPI less certain housing costs).
Since 1987, benefit rates have changed from April each year, based on the increase in the relevant index (RPI or Rossi) over the twelve months to the previous September. The legislation does not require the use of September figures however.
In the June 2010 Budget it was announced that, from April 2011, the measure of price inflation used for uprating benefits and tax credits would
henceforth be the Consumer Prices Index (CPI), rather than the RPI or Rossi.
The September 2011 CPI was 5.2%, up from 4.5% in August and its highest rate of increase since September 2008 (the all-items RPI increased by
5.6% in the twelve months to September 2011, while the Rossi index increased by 6.8%).
Media reports suggested that the Government considered various options – including freezing benefits, increasing some benefits by less than the CPI, or basing the uprating on the average level of the CPI over a six month period – in light of the higher than expected CPI figure. In his Autumn Statement on 28 November, the Chancellor said that while most benefits would rise in line with the CPI from April 2012, the couple and lone parent elements of Working Tax Credit would be frozen and the additional £110 increase in the child element Child Tax Credit over and above CPI – announced last year – would not now go ahead. These measures are expected to yield savings of £1,240 million in 2012-13.
Commons Briefing papers SN06141
Author: Steven Kennedy