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18 October 2011updated 22 Oct 2020 3:55pm

How Osborne could squeeze benefits again

No. 10 suggests benefits and pensions might not be uprated in line with latest inflation figures.

By George Eaton

The higher-than-expected inflation numbers were bad news for George Osborne, not least because the September figures are traditionally used to determine how benefits and pensions are uprated the following April. At the Budget, the Office for Budget Responsibility predicted that CPI inflation would be 4.3 per cent but it turned out to be a whopping 5.2 per cent. As a result, as the ippr’s Tony Dolphin notes, government spending on welfare will be £1.2 billion higher next year than previously thought. With government borrowing already set to be £44.4bn higher-than-expected across the parliament (thanks to lower growth and higher unemployment), this is money that Osborne can ill afford to spend.

But there’s every sign that the he is prepared to change the rules. At this morning’s lobby briefing (see Paul Waugh’s blog for a full account), the Prime Minister’s official spokesman told reporters:

The process on this is that the September figures are usually used for uprating benefits, but the final decision on that is something that happens in the autumn statement … It is standard procedure [to use the September figure] but it is also standard procedure that the decision is taken at the pre-budget report, under the previous government, or in the autumn statement under this government.

In other words, Osborne could simply choose to use a lower set of inflation figures in order to avoid spending more. It offers him a way out but at the cost of further antagonising pensioners and others reliant on state benefits. Osborne’s decision to uprate benefits in line with the Consumer Price Index rather than the (generally higher) Retail Price Index has already cost some families hundreds of pounds a year (see James Plunkett’s Staggers blog on the coalition’s “£11bn stealth cut“).

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But the Chancellor is likely to come under significant pressure from the Tory right to act. As the Telegraph’s Benedict Brogan notes, economists wonder what “those whose private sector wages are not keeping up with inflation will make of seeing benefits increased by September’s whacking CPI figure.” But at a time when pensioners are seeing the value of their savings eroded every day by inflation, it would be a brave Chancellor who picked this moment to tighten the squeeze.

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