Temporary pause in inflation falls highlights cost to low and middle income households of benefits not keeping pace with prices

Progress on getting inflation back down to target stalled in September as CPI inflation remained at 6.7 per cent, with a welcome monthly fall in food costs offset by rising petrol prices, the Resolution Foundation said today (Wednesday).

CPI inflation remained unchanged in September, defying market expectations of a slight fall. However, a big fall is guaranteed next month as last year’s jump in the Energy Price Cap falls out of the figures, and energy prices fall for most people.

The latest inflation is particularly important as it is the basis for uprating working-age benefits next April. The Foundation says that doing so is the minimum required to ensure that benefits merely return to their pre-pandemic value.

Even with this uplift, the typical family is on track to experience no disposable income growth next year, with income falls for the poorest families. However, the government is reportedly considering a real-terms cut to benefits in order to save money.

The Foundation’s quickfire analysis shows that imposing a cash freeze on ‘non protected’ working age benefits such as Universal Credit next year, rather than uprating them by 6.7 per cent, would save around £4.1 billion a year.

However, the cost is doing this would be stark, warns the Foundation, as it would result in nine million families experiencing a permanent income hit averaging £460 a year. A low-income working family with two children would experience an income fall of around £1,200 a year.

James Smith, Research Director at the Resolution Foundation, said:

“Progress on falling inflation has stalled, for one month at least. It should fall sharply next month to below 5 per cent next, as energy prices fall for most people.

“The latest inflation data tells us about the recent past and also shapes cost-of-living pressures on low and middle income households next year, as it normally used to increase benefits in April.

“Should the government choose not to do this, as it has done seven times since 2010, in order to save money, nine million families across Britain will pay a heavy price.

“Families who receive benefits would see their incomes fall by £460 on average, while many low-income families with kids face much higher income losses, rising to £1,200 for a low income couple with two children.”