By Tim Montgomerie
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According to the Daily Mail George Osborne "has decided to break the historic link between welfare payments and inflation". That overstates the reality. People on benefits will still get a larger increase in their weekly incomes than those in work. Pay for large numbers of public sector workers has been frozen. Pay increases in the private sector are running at half the rate of inflation. Rather than seeing their benefits rise by the inflation rate that existed at the end of September (which has been the trigger for the last two decades) the benefits of non-pensioner households* will increase by the average inflation rate that prevailed over the six months to September. This means people claiming benefits such as the jobsekkers' allowance and the disability living allowance will get a 4.5% increase rather than a 5.2% increase.
The Times' Jill Sherman reports (£) that this will save Mr Osborne about £1 billion and that this money will be used to stop increases in fuel duty.
Anti-poverty groups have reacted angrily. Alison Graham of the Child Poverty Action Group said that "even more poor families will have to choose between heating and eating." Other groups said the real inflation rate facing low income groups was higher even than 5.2% because energy and food price inflation had a bigger impact on low income households.
It is not clear if the Liberal Democrats have yet approved Osborne's plan although my understanding – contrary to some newspaper speculation – is that Iain Duncan Smith is content. David Laws has publicly urged Nick Clegg to stick with the 5.2% uprating. The FT (£) reported the view of some Lib Dem insiders that to do otherwise would be “arbitrary and vindictive”.
My guess is that the move will be popular with most voters, especially low income people in work who are getting much less of an increase than people on benefits will get. Earlier this year a survey for Policy Exchange found that three times as many Britons thought benefits were too high rather than too low (50% against 16%). Only 3% thought higher benefits were the best way of tackling poverty.
On Comment today Harriett Baldwin MP writes about benefit levels in the second part of the ConHome/ Centre for Policy Studies series on turbo charging the UK economy. She says ministers should consider the localisation of benefits and also, controversially, that benefits should not automatically rise with claimants who have more children. Read her piece here.
* Pensioners' benefits will still increase by the September figure of 5.2%.