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Jeremy Hunt has been warned by senior Conservative MPs not to create space for tax cuts by announcing “perverse” real-terms reductions to the benefits paid to the poorest in society.
The UK chancellor is under fierce pressure to use the Autumn Statement to lay the groundwork for later tax cuts and his allies have confirmed he is considering saving money by squeezing the benefits bill.
But several influential Conservative MPs told the Financial Times that Hunt should not target the vulnerable for cuts during a cost of living crisis by failing to increase benefits in line with inflation.
Sir Bob Neill, chair of the Commons justice committee, said such a decision would be “perverse”, adding: “It would be counter to the government’s own strategy to protect the weakest in society while we get the cost of living under control.”
Sir Robert Buckland, former cabinet minister, said: “At a time when the cost of living continues to bite, then uprating benefits in line with inflation is both sensible and essential.”
Working age benefits are usually increased in line with rising living costs in April each year using September’s official figure for inflation, which was 6.7 per cent this year.
Hunt has warned he would have to take “difficult decisions” at the Autumn Statement and his aides said that uprating benefits at less than 6.7 per cent was “still very much a live option”.
The row highlights the dilemma facing Hunt, as some of his colleagues want him to cut taxes at a time of very tight public finances, while others oppose inflicting painful cuts on voters ahead of an election.
Ministers have discretion over benefit uprating decisions, but many Tory MPs warned that to break with the norm of taking the previous September’s inflation figure would anger voters.
“We would oppose it,” said one former cabinet minister. “It would be a very strange thing to do at this stage of the political cycle. Some 40 per cent of people on universal credit are in work.”
Another former minister said it would be “the best way to get more tents on the street”, while a rightwing Tory MP representing a largely working class seat said: “Low-income households are having a terrible time. Pressure on food banks is mounting.”
Liz Truss, the former Tory prime minister, toyed with the idea of cutting benefits in real terms last year but ultimately the government was forced to uprate them by more than 10 per cent following a rebellion.
Some Conservatives believe a revolt is less likely this year. One Tory official said that the backlash against Truss’s plan was partly a function of her unpopularity.
Hunt and Mel Stride, work and pensions secretary, will await further forecasts from the Office for Budget Responsibility in the coming days before reaching their decision on whether to uprate by 6.7 per cent, according to government officials.
The Resolution Foundation think-tank this week said Hunt could have higher-than-expected fiscal “headroom” of about £13bn in his Autumn Statement, allowing him to deliver better news.
James Smith, the think-tank’s research director, said freezing working age benefits in cash terms — the most extreme option — could raise £4.2bn but it would “deepen an already damaging cost of living crisis” for 9mn families.
Hunt could save a smaller amount by “under-uprating” benefits, for example increasing them by 5 per cent, in line with the expected latest inflation data when he delivers his Autumn Statement on November 22.
Inflation is expected to fall towards 5 per cent next week and the Bank of England expects it to reach about 4 per cent in the first half of next year.
The Treasury directed inquiries to the Department for Work and Pensions, which said: “We increased benefits by over 10 per cent this year in order to protect the most vulnerable from the impact of high inflation.
“As is the usual process, the secretary of state will conduct his statutory annual review of benefits and state pensions using the most recent data available.”
Hunt and Stride are also considering saving money by trimming “triple lock” increases in the state pension, which this year will be linked to average earnings.
They could use earnings data that excludes bonus payments; the relevant figure would be 7.8 per cent. This would save an estimated £900mn compared with using the usual measure of total earnings growth, which stood at 8.5 per cent in the same period.