Benefit payments are set to go up by just a fraction of how much goods will rise this year, plunging some of the worst off households into further financial crisis, a think tank has warned.
Payments for 10million claimants are set to go up by 3.1% in April – when inflation is expected to hit 6% and the new energy price cap comes into force.
Think tank the Institute for Fiscal Studies (IFS) said the Department for Work and Pensions should raise the payments by twice as much as planned if the poorest households in Britain are to be supported through the cost of living crisis.
It said an additional £3billion is needed in response to soaring energy bills and essentials such as food and rent.
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Instead of a planned 3.1% increase, it said payments needed to rise by about 6% to protect lowest-income households.
Raising benefits by this amount - even if just temporary - would mean preventing a £290 real fall in benefit income year on year for the 10m households in receipt of state support, the report said.
It is understood that the government is in talks to push forward the warm homes energy discount to help 800,000 more homes in the coming months, but even then, the scheme ends on March 31.
Households with typical energy usage face a £700 rise in annual bills without government intervention. That would put a typical annual energy bill close to £2,000.
Meanwhile, the rise in the state pension set for April amounts to an annual increase of less than £300.
One other policy being considered by Boris Johnson is to remove VAT on energy, saving homes around 5% on bills.
It comes as a planned 1.25% increase in national insurance will kick in from April.
Benefits are due to rise from April by 3.1%, in line with September’s inflation rate as part of the government’s annual uprating process.
However, the Bank of England has said inflation could peak close to 6% in the same month.
Robert Joyce, the deputy director of the IFS, said: “We have become used to an era of low and stable inflation. But the way in which we increase benefits each April is not fit for the period of high and rising inflation we now face.”
“This need not be a permanent increase. Future uprating can be adjusted once inflation has fallen back,” he said.
The think tank estimated that overall energy bills were likely to rise by £14bn this year, meaning compensation for households broadly across the population would prove very expensive or only extremely partial.
