High inflation ‘will be reflected’ in benefits next year, says Treasury minister

A Treasury minister has suggested benefits increases in 2023 will be linked to soaring inflation, with the triple-lock also “in place” for pensions.

Simon Clarke told MPs high inflation “will be reflected” in the uprating figures for April 2023 if the current forecasts come to fruition.

The Government will uprate benefits by 3.1% this April although the inflation rate is expected to average nearly 8% over the year.

The triple-lock guarantees that pensions grow in line with whichever is highest out of earnings, inflation or 2.5%, but the earnings element was suspended for 2022/23 due to fears of an unaffordable rise caused by the impact of the coronavirus crisis on wages.

Mr Clarke, opening the debate on the National Insurance Contributions (Increase of Thresholds) Bill, told the Commons: “The United Kingdom spends £243 billion a year on our wider welfare spend, including pensions. This is a country where we do do a huge amount to make sure that everyone is supported.

“We have to consider all our decisions in the context of both wider affordability and also how the system operates. The welfare system always operates on the basis of an uprating in September for changes in the ensuing April.

“If there is high inflation, as is forecast, during the course of 2022 that will be reflected in the uprating figures for April 2023 and the triple lock will be in place to protect families.”

He later confirmed: “Insofar as the forecasts of very high inflation for this year do indeed come to pass that will be captured in the uprating figures that will be delivered this autumn for 2023 benefit uprating.”

The Bill implements a policy announced by Chancellor Rishi Sunak in his spring statement to raise the threshold at which people pay national insurance (NI).

NI starting thresholds will rise from £9,880 to £12,570 from July, aligning income tax and NI in a tax cut worth more than £6 billion, according to the Treasury.

The Government believes it will benefit almost 30 million UK workers and save the typical employee more than £330 in the year from July.

It was previously announced that a UK-wide 1.25 percentage point increase in NI contributions will be introduced from April 6, with funds raised ring-fenced for health and social care.

Labour’s Stephen Timms, who chairs the Work and Pensions Committee, highlighted concerns that Universal Credit claimants will lose 55% of the £330 tax cut “due to a reduced Universal Credit award”.

Mr Clarke said he would look into the issue but did not have figures to hand.

For Labour, shadow Treasury minister James Murray said the Bill has more to do with the Chancellor’s “increasingly desperate” desire to paint himself as a tax cutter than helping people with the struggles they face.

He said: “We will support today’s Bill as any help for people facing the Chancellor’s national insurance tax hike in April is something we welcome. There are benefits to raising the threshold at which people begin to pay national insurance.

“But we should be conscious that this Bill has more to do with the Chancellor’s increasingly desperate desire to paint himself as a tax cutter than it does with a well thought through package of measures to help people with the struggles they face. Even after this Bill passes, the truth is the tax burden in our country will still be at its highest in 70 years.

“We are still the only G7 country to be raising taxes on working people this year.”

Mr Murray noted that the “truth is the Chancellor has realised his national insurance hike in April is wrong”.

Labour former shadow chancellor John McDonnell said action was also needed on wages, warning: “Unless we inflation-proof wages, I’ll predict now we will see flaring up industrial strife within our country.”

Mr McDonnell gave the example of council workers and their below-inflation wage settlement.

He said: “What we should be doing, and I just invite the Government to consider the issue with regards to wages in the public sector because they obviously set the terms of the private sector as well, that unless we inflation-proof wage settlements what we’ll find is often the lowest paid workers will be hit hard by the erosion of their wage standing as a result of inflation.”

The Bill received an unopposed third reading and will undergo further scrutiny in the Lords at a later date.