Millions of households in the UK are set to face lower increases in benefit payments next year due to an unexpected drop in inflation.
The Consumer Price Index (CPI) fell to 1.7 per cent in September, down from 2.2 per cent in August, marking its lowest level in three and a half years.
This dip, while generally welcome, comes at a critical time for benefit calculations. The September CPI figure is used to determine the uprating of working-age benefits for the following financial year.
Campaigners have warned that low-to-middle income families will see smaller increases in their benefit payments than they might have expected, sparking concerns about the impact this will have on vulnerable households as they head into winter.
A typical low-income family with two children on Universal Credit is set to see their annual award rise by £253 next April, the Resolution Foundation found.
However, if benefits were uprated in line with the expected October inflation of 2.2 per cent, the same family would receive a £327 increase – a difference of £74.
The impact of this lower uprating extends beyond Universal Credit to a wide range of benefits
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The September inflation drop was primarily driven by a sharp fall in transport prices, including airfares and petrol. However, this decrease is not expected to last, with inflation predicted to rise by around 0.5 percentage points in October.
Lalitha Try, Economist at the Resolution Foundation, said: “This temporary fall is badly timed for millions of low-to-middle income families as will result in a lower increase in their benefits next year.
“A more timely measure of benefit uprating would deliver a cash gain to a low-income family with kids of around £74 next year.
“The Government needs to address the age divide in benefits which has left working-age support fall further behind rising wages and living standards.”
The impact of this lower uprating extends beyond Universal Credit to a wide range of benefits. All disability benefits, including Personal Independence Payment (PIP), Attendance Allowance, and Disability Living Allowance, will be affected.
The Carer’s Allowance is also set to rise by just 1.7 per cent next April. This marks a significant decrease from the 6.7 per cent increase paid out earlier this year.
For example, the standard Universal Credit allowance for a couple over 25 is expected to rise by just over £10 per month, compared to last year’s nearly £40 increase.
The smaller uprating may reignite debates over the two-child benefit cap. Introduced in 2017, this policy limits Universal Credit for families with more than two children born after April 2017.
Critics argue it pushes more families into poverty, particularly affecting single parents.
Iain Porter, senior policy adviser at the Joseph Rowntree Foundation, said: “The reality is millions of families can’t afford enough food this week, or to turn the heating on as the nights get colder.”
The charity estimated that Universal Credit falls short by around £120 every month of what people need for essentials.
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Porter added: “The basic rate of universal credit is so insufficient it fails to protect families from hardship, and this increase will barely touch the sides.”
The Joseph Rowntree Foundation, along with Trussell Trust and the Big Issue, has called for an “essentials guarantee” to be implemented in Universal Credit.
Ahead of the autumn budget, Porter urged: “The budget must contain urgent measures to support families who are going without essentials.”
