State pensions are set to increase by at least the current rate of inflation of 5.2% next year. By next April the basic state pension is likely to rise from £102.15 to £107.50 per week, after September’s sharp rise in the Consumer Price Index (CPI) inflation rate.
Most benefits are set against the September reading of the CPI, which the Office for National Statistics announced yesterday was 5.2%.
The increase will add £5.20 to benefits such as the job seeker’s allowances, disability and maternity payments. The news will also please taxpayers as the thresholds on taxes such as income tax, national insurance and inheritance tax will also rise by 5.2%.
The CPI tracks the prices of a basket of goods that is bought by the average UK household. The basket of goods has risen dramatically in price over the past 12 months hence the high inflation rate.
Linking benefit payments to the CPI ensures that those on benefits do not suffer unduly because of high cost of living increases.
The coalition promised when it came into power in 2010, that it would increase the state pension yearly by whichever of the triple lock markers was higher: 2%, average earnings or the CPI.
The link to earnings was previously cut in the 1980’s under Margaret Thatcher’s leadership. A move which the National Pensioners Convention say cost pensioners £50 in pension increases since.
It is unlikely that the earnings link will come into play this year as pay-rises are rare and many employees have faced pay freezes and even wage drops, making the actual wage growth in the UK nearer 2%.
This means that the CPI figure is the front runner of the triple lock measures for increases in pensions and benefits next April.
The inflation figure of 5.2% is the joint highest for the CPI since they first began calculating their basket of goods in 2000. The last time inflation was at this rate was in September 2008.
The Bank of England faces a mammoth task of trying to get inflation down to its own target of 2%, although the Bank Governor, Mervyn King has confidently said that the inflation rate will start to fall back in 2012.
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