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UK ministers are exploring cutting working-age benefits in real terms ahead of the general election expected next year in a push to create space for tax cuts and to set a political trap for Labour, according to senior Conservatives.
Jeremy Hunt, chancellor, will present his Autumn Statement on November 22 and is under pressure from Tory MPs to start cutting taxes in the face of a tight fiscal backdrop.
Although officials briefed on the discussions told the Financial Times that talks were at an early stage, one option being considered by ministers is to break the inflation link with benefit uprating.
“It would put Labour on the spot because they’d have to say whether they were going to follow suit,” said one government insider. The Conservatives would argue the welfare squeeze was needed to fund tax cuts, the person added.
Rachel Reeves declined to be drawn into what Labour has already identified as a potential trap. “This is all very speculative — we’re not commenting,” said a spokesperson for the shadow chancellor.
The idea of cutting benefits in real terms would be controversial, including with some Conservative MPs, and would risk being seen as an attack on vulnerable people who are already struggling with the cost of living crisis.
The Treasury declined to comment on a report by Bloomberg News that said options being considered by ministers included lifting benefits by at least 1 percentage point below inflation or raising them in line with projected lower inflation figures for next year.
Government insiders said discussions about the Autumn Statement and next year’s benefit upratings were at a preliminary stage and confirmed such a move would be seen as highly political.
The Department for Work and Pensions said: “In order to protect the most vulnerable from the impact of high inflation, the government increased benefits by over 10 per cent this year.
“As is the usual process, the secretary of state will conduct the statutory annual review of benefits and state pensions in the autumn, using the most recent data available.”
Allies of Liz Truss, the former prime minister, said she had proposed below-inflation increases to benefits during her shortlived premiership by linking increases to wages rather than price rises.
Truss’s team claim her idea was rejected by cabinet members but would have saved almost £5bn a year. “This is another pale imitation of the Truss playbook,” said one ally.
The government froze working-age benefits for four years from April 2016, so there is a precedent for such a move, but that was at a time of much lower inflation.
The Bank of England expects the inflation rate in September — the rate relevant for benefit uprating — to be 6.9 per cent.
The Treasury is preparing to increase the UK state pension by more than 8 per cent next year because of the controversial “triple lock”, which has raised retirees’ incomes faster than workers’ wages.
The sharp increase in state pension payments follows a 10.1 per cent rise this year. Pensioners protected from last year’s energy-driven inflation will now receive another boost, this time in line with the increase in average wages. The government said it was committed to the triple lock.
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