Rocketing inflation might not be all bad news, but hard-up families will have to wait a year to find out.
For if the cost of living continues to soar for the rest of the year, as it is expected to, households relying on benefits will see a huge pay rise next April. Next month, benefits will rise by 3.1%, set against an inflation rate of 6.2% in February. However, next year's rise might be a different story.
The rise of 3.1% was based on the inflation figure from September 2021, when the increases were calculated. But since then, inflation has skyrocketed and it's expected to shoot up further, with the Office for Budget Responsibility suggesting that the war in Ukraine and energy costs would push the Consumer Price Index to a 40-year high of 8.7% in the final three months of 2022.
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The Bank of England warned that inflation might even hit double figures of 10% or more later this year if the energy price cap goes up again in October.
And while all that is cold comfort for household budgets this year, it promises some better news for the next financial year as Government payouts are based on inflation.
For the 2022/2023 financial year, all benefits are going up by 3.1% in line with a decision to increase the State Pension by that amount. Pension rises are normally based on a triple lock that sees them go up by whichever is the highest of inflation, average wage increases or 2.5%.
But wages jumped at the end of furlough, in what was described by Work and Pensions minister Therese Coffey as 'an anomaly', so the Department of Work and Pensions (DWP) announced last September it would set the wages element aside, and instead use the inflation figure of 3.1% at that time. Had the average wage increase been used, pensions would have jumped by eight per cent.
Therese Coffey has pledged that the triple lock will be reinstated next year - and if an eight per cent rise is applied, pensions will go up by £770 over the year. All other benefits would then get the same percentage increase.
And Treasury minister Simon Clarke moved to reassure MPs discussing the new National Insurance bill that rising costs will be taken into account when setting next year's rise, saying "If there is high inflation, as is forecast, during the course of 2022 that will be reflected in the uprating figures for April 2023 and the triple lock will be in place to protect families."
The Bill implements a policy announced by Chancellor Rishi Sunak in his Spring Statement to raise the threshold at which people pay National Insurance. NI thresholds where it starts to be applied will rise from £9,880 to £12,570 from July.
The Government believes the policy will benefit almost 30 million UK workers and save the typical employee more than £330 in the year from July.
But Labour's Stephen Timms, who chairs the Work and Pensions Committee, highlighted concerns that Universal Credit claimants will lose 55% of the £330 tax cut "due to a reduced Universal Credit award".
The DWP's largest payout is the State Pension, with 12.5 million recipients, followed by Universal Credit, which has 5.6 million claimants according to the latest figures. Around 40% of those on Universal Credit are working and claim the benefit to top up low wages.
Are you worried about the cost of living and how you will make end meet? Let us know: catherine.furze@reachplc.com
