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State pension to rise by 3% but benefit claimants and businesses suffer

The state pension is linked to September’s Consumer Price Index (CPI) rate of inflation.


Benefits report

Benefits report

Benefits report

British pensioners have emerged as the winners from September’s inflation figures while households, benefit claimants and businesses face a financial squeeze.

The state pension is linked to last month’s Consumer Price Index (CPI) rate, meaning the amount dished out will rise by at least 3% next year.

The triple-lock on pensions ensures that recipients are guaranteed a minimum increase each year by whichever is the highest of September’s inflation rate, average earnings growth or 2.5%.

However, benefit claimants will see their handouts eroded and English businesses are bracing for a rates rise of £1.1 billion next year following the latest inflation data.

The Government’s decision to freeze working-age benefits in cash terms until March 2020 will boost the Treasury’s coffers by £4.6 billion.

But the move also shaves £450 a year off state handouts in 2019/20, affecting around 10.5 million households.

Tom Waters, a research economist at the Institute for Fiscal Studies (IFS), said: “This morning’s inflation figure, taken together with the latest inflation forecasts, means that the four-year freeze on most working-age benefits is now expected to cut the benefits of 10 million families by £450 a year in real terms – up from £320 back when the freeze was first announced.

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“The extra £130 loss is not the result of any deliberate decision by the Government – it is the consequence of inflation being higher than was expected when the policy was set.

“This illustrates a problem of setting benefit rates far in advance in cash terms – it leaves the actual generosity of future benefits sensitive not only to the Government’s active decisions but also to unexpected moves in inflation.

“It means that the risk of higher inflation – a risk that has now materialised – is being borne by working-age benefit recipients.”

The Retail Price Index (RPI), which is used to set next year’s business rates, was unchanged last month at 3.9%.

As a result, from April 1 next year the retail sector will have to stomach a £294.2 million rate rise, according to business rates specialists CVS.

Industry and offices will see a jump of £241.2 million and £275.1 million respectively, while other firms which do not fall into these categories will see rates climb by £338.4 million, CVS said.

The Government has vowed to switch the business rate calculation from RPI to CPI, but this will not kick in until 2020.

CVS chief executive Mark Rigby has called on Chancellor Philip Hammond to freeze inflationary increases in the Autumn Budget.

He said: “Property taxes in Britain are already the highest of any European nation, both as a percentage of GDP and overall taxation.

“Brexit is driving inflation and businesses are holding off from investing because of the current economic climate of uncertainty.

“Insolvencies are expected to rise over the next two years. To plough ahead with such rate rises would be foolhardy and the Chancellor must be bold in his vision with a freeze.”