Chancellor George Osborne last week flew a kite suggesting he will freeze any increase in social welfare payments when the annual uprating is put to MPs next month – to avoid matching September’s 5.2 per cent CPI increase.
In his first Budget last year, Mr Osborne said he would henceforth peg any annual increase in benefits payments to the Consumer Price Index of the preceding September.
The CPI, unlike the Retail Price Index, does not make allowance for the cost of housing, saving the Treasury an estimated £6 billion a year.
But since last week a series of authoritative, well-briefed articles have appeared across the news media – including the Financial Times – saying that Mr Osborne is baulking at the prospect of increasing welfare payments by 5.2 per cent while average wage increases have been 1.8 per cent.
The Institute of Fiscal Studies estimated that September’s 5.2 per cent would add £1.8 billion to next year’s £18 billion social welfare benefits bill.
Mr Osborne is reliably said to have asked Treasury officials to come up with yet another new benchmark such as pegging any uprating to average earnings growth of 2.5 per cent or even a blanket freeze. The latter is widely considered to be something of a bluff or red herring intended to manipulate expectations so that a below inflation rise will not seem as harsh as it otherwise might.
The IFS said that freezing all benefits and pensions would save about
£10 billion, linking to wage rises would save £5 billion and aggregating the inflation figure over the preceding six months to September could save £1.4 billion.
Work and Pensions Secretary Iain Duncan Smith is due to put the proposed payment rates for April 2012 before MPs next month.
Deputy Prime Minister Nick Clegg, questioned about the reports, said recently that his party would not allow the Government “to balance the books on the backs of the poor” but qualified this by saying difficult decisions would have to be made.
The former Liberal Democrat Treasury Chief Secretary David Laws publicly sent a letter to his party leader Mr Clegg urging him to resist any freeze or real terms cut for the poorest and most vulnerable.
Although the Government has said it will protect pensions from the worst of inflation by linking them to the average increase in earnings, or 2.5 per cent, from April this year, from next year it will cease to use the RPI for its calculations but the cheaper CPI.
Meanwhile, official figures from the Department of Work and Pensions report that in 2010/2011 £3.3 billion of benefits payments were lost to fraud and error: £2.1 billion to error, £1.2 billion to fraud.
Figures used recently by the BBC from Portsmouth University suggested that in the past few years of £22 billion
of benefits payments lost to fraud and error, overwhelmingly the lion’s share – £18 billion – was due to administrative error by government departments such as the DWP and HM Revenue and Customs and £4 billion to fraudulent or incorrect claims.
