Will benefits rise with inflation and how much could they go up by?

Millions of families are struggling with the rising cost of living, but will benefits rise with inflation? The good news is, the government has just announced how much benefits will go up by and whether it will be in line with inflation. 

If you're unsure what inflation means, in essence, it's the rate at which prices are going up. There are a combination of reasons why inflation is rising, including energy prices going up and the cost of food rising too.

For the last few months, the rate of inflation has be at (or very near to) a 41-year high. Ultimately it means we have to pay more for the items and services we pay for. And this is understandably difficult for those on lower incomes. 

The past few months has seen a lot of speculation about how much benefits will rise by next year. 

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says: “The lower your income, the bigger a proportion of it you spend on the essentials, and it’s these essentials that have been rising most alarmingly – with the price of gas more than doubling in a year, electricity up more than a half, and food up over 14%. It means those who rely on state support to make ends meet desperately need Universal Credit to rise in line with inflation.

“If we don’t see Universal Credit keep up with inflation it could have a devastating impact on those who need help the most. It could force them into dangerous decisions around heating and eating. It could mean an awful lot more people need to turn to food banks for support. It may also mean more people missing bills, which can have a catastrophic impact on their finances.”

Will benefits rise with inflation?

The government has announced that benefits will rise in line with inflation in April 2023. Those on working age and disability benefits will see payments rise 10.1% in line with inflation from the start of the next tax-year. Chancellor Jeremy Hunt made the announcement in the Autumn Statement on 17 November.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says: “As the insidious rise in prices wreaks havoc on household budgets, there will be a big sense of relief that benefits have been uprated with inflation and that a rise in the minimum wage is also on the way. 

“Many have based spending decisions on having this extra benefits income in April to try and make ends meet and the worry that the promise would be whipped away was causing plenty of sleepless nights.”

Most benefit payments are increased every April – but until the Autumn Statement it wasn’t clear how much benefits would be uprated by in April 2023.

A statement from HM Treasury said: “Uprating working age and disability benefits will cost £11bn next year. More than 10 million working age families will see their benefit payments rise from April 2023. The government is also providing support this winter for people who need help now, including money off energy bills and cost of living payments announced in May 2022.”

Former prime minister Boris Johnson had promised to increase working-age benefits in line with the September level of inflation, which was 10.1%. Rishi Sunak promised the same thing when he was chancellor and also when he was campaigning to be prime minister.

But former prime minister Liz Truss was considering raising Universal Credit at a lower rate in an attempt to balance the books after the disastrous mini-budget by Kwasi Kwarteng. 

What is benefit uprating?

Most benefits are increased – or “uprated” – each April. The Department of Work and Pensions carries out a formal review in October; the rate at which benefits are increased is normally announced in November and comes into effect the following April. 

Although working-age benefits, such as Universal Credit, generally rise in line with inflation, there is no legislation in place to make sure this definitely happens and it’s up to the government in power at the time.

The State Pension receives more favourable treatment than other benefits. It’s subject to the “triple lock” guarantee, which ensures State Pension payments rise in line with either earnings, inflation, or 2.5% - whichever is highest. The government had been toying with the idea of scrapping the triple lock promise as it costs too much money, but Chancellor Jeremy Hunt has now confirmed the guarantee will stay in place for the 2023-24 tax year.

How are benefit rises decided?

Each year, the government uses the September inflation figure as measured by the consumer prices index (CPI) to calculate by how much certain benefits, including the state pension will rise the following April.

Inflation is the term uses to describe rising prices. How quickly prices go up is called the ‘rate of inflation’. Inflation stood at 10.1% in September. 

The triple lock means that anyone claiming the State Pension will get 10.1% more cash from April next year. The full new State Pension will go up from £185.15 to £203.85 a week, a difference of £972 a year.

Jon Greer, head of retirement policy at Quilter, said: “Following weeks of mounting concern, pensioners across the country can breathe a sigh of relief as Chancellor Jeremy Hunt has finally put the rumours to rest and confirmed that the government will honour its manifesto promise of keeping the triple lock in place for the 2023-24 tax year.

“Pensioners suffered a miserly 3.1% increase in the State Pension in April 2022 after the triple lock was scrapped last year following an anomalous rise in earnings and have increasingly struggled to make ends meet as inflation continued to rise and their purchasing power was diminished. The triple lock commitment will see the full new state pension – for those reaching state pension age from 6 April 2016 – rise to £203.85 per week, or £10,600.20 per year as a result of the 10.1% inflation figure seen in September.”

We now know that other benefits such as Universal Credit and Carer’s Allowance will go up in line with inflation too. There had been speculation that the government might decide to increase these payments in line with earnings instead. Wages are rising at an annual rate of 5.5% – just over half the rate of inflation.

How much will benefits go up in 2023?

The following table shows the current standard allowance monthly payments for Universal Credit, the new payments which will take effect from April 2023, and the monthly and annual differences.

How much Universal Credit you get depends on your age and circumstances. You’ll get one ‘standard allowance’ per household then you might get extra money if you have children or if you have a disability.

As the table shows, a single person aged under 25, will receive an extra £26.80 a month from April 2023. A couple where at least one person is aged 25 or over will be more than £600 a year better off. 

The Autumn Statement also saw Chancellor Jeremy Hunt announce a new wave of support for those most vulnerable to price rises, including a new £900 cost of living payment for those on certain means-tested benefits.