The Waugh Room

Tuesday 18th October 2011 | 12:35

Benefits-inflation link reviewed?

The jump in inflation to 5.2% this morning causes an immediate headache for George Osborne's deficit-cutting plans.

The traditional link between September's CPI rate and the annual uprating of benefits and pensions means that on the face of it there could be some nice rises in the pipeline for benefit claimants and pensioners.

But, there's a big 'but'.

The IFS and the IPPR have variously estimated that the extra cost to the Treasury of this higher inflation rate is anything from £1.2bn to £1.8bn more for 2012/3 than the OBR forecast. That means extra borrowing, not lower borrowing.

So, I decided to put this to the PM's official spokesman at the Lobby briefing. Was the Government considering reviewing the September link to benefits uprating? Is it possible that the Chancellor could look at a new measure for the uprating process, say a longer period than just the snapshot of September?

The spokesman's reply was fascinating. First he pointed out that the Cabinet had indeed discussed the fact that the inflation rate could impact on benefits uprating.  Then he added this:

"The September figures are usually used for uprating of benefits and so on and the final decision on that used to happen in the PBR and [now] happens in the Autumn Statement.

"Those issues are issues for the Chancellor. The September inflation figures are usually the ones that are used but the actual decision is taken at the time of the PBR or Autumn Statement."

Note the words 'usual' and 'usually'. If George Osborne deemed that we were living in unusual times, maybe he could do something different.

He will be wary of being seen to block pensioners any uprating they're due, but may be tempted to separate out benefits with a below-inflation rise. That may go down well with Tory backbenchers.

But Osborne will be very mindful of Gordon Brown's own cock-up over a previous September inflation rate: remember when inflation was so low that pensioners were only given a miserly 75p rise?

That was because a Chancellor stuck rigidly to what was 'usual' practice on uprating....

 

UPDATE: Treasury minister David Gauke was just asked on Wato about the potential 'black hole' caused by any uprating.

"Well, obviously there will be an Autumn Statement when the Chancellor will set out an update on the public finances and this will be one factor amongst many.."

Martha Kearney interjected: "You seem to be leaving open room for maneouvre there that you may not peg the benefit rises to September.."

Gauke replied: "No, I'm not. I'm saying there are a number of factors that will determine the public finances, one of which is the increase that we will see in pensions, for example. We are commited to that increase in the minimum in line with CPI..."

But while he was firm on pensions, note that the minister signally left out an explicit reference to an increase in benefits.

FURTHER UPDATE: TUC General Secretary Brendan Barber clearly reads this blog. Here's his quote to PoliticsHome:

“Today’s hint that the Chancellor won’t honour the commitment to uprate  benefits in line with this month’s inflation figures is very alarming. The cost of living has rocketed for those who depend on benefits more than any official measure captures. Not only does the Chancellor want to use CPI, the generally lower inflation measure that excludes important items like housing, it now seems that he may not even keep that promise.”

Treasury are being wonderfully Sphinx-like, either to keep their options open or out of reluctance to confirm anything ahead of Autumn Statement.

Here's what one Treasury source just told me: "Standard policy assumption is to uprate in line with Sept inflation". When asked if that means Chancellor will definitely uprate benefits in line with Sept...radio silence.

3.45 UPDATE: Treasury sources tell me not to read too much into all this: "We will follow standard procedures."

That may be enough to kill off the speculation now.