Many benefit claimants will be hoping to see their payment rates increase next year, after the CPI figures for September - traditionally the figure on which benefits rises are pegged - hit 3.8%.
While the final amounts will have to be confirmed by the chancellor in the Autumn Budget next month, the Department for Work and Pensions (DWP) used the September 2024 figures for the basis of this year's inflationary rise.
Last year that was around 1.7 per cent, but this year it's much higher at 3.8%.
But, while the increase will be welcomed, there's a stark warning from charities. Anna Stevenson, Benefits Expert at Turn2us explains: “Raising the Universal Credit standard allowance above inflation is a step in the right direction, but it comes after decades of erosion.
"Support remains at one of its lowest ever levels in real terms and as a proportion of average earnings. Many households will still struggle to meet basic costs because rents, childcare and energy have risen far faster.
"Rent is one of the biggest pressures on people’s incomes, yet help with private rent has been frozen.
She adds: "Around 40% of the people using our Benefits Calculator say they can’t afford food, and more than 600,000 households on transitional protection won’t see any increase at all because their payments are frozen in cash terms.
"That’s why we’re supporting the Joseph Rowntree Foundation and Trussell Trust’s proposal for an Essentials Guarantee, which would set a legal minimum so Universal Credit always covers life’s basics like food, heating and rent. Without that, people will continue to fall further behind even when benefits rise on paper.”
Many benefits are not claimed each year. Use a benefits calculator to find out what other benefits you might be entitled to, for example, Personal Independence Payment (PIP) if you have a long-term health condition or disability.
Experts are also predicting hard times for homeowners.
Alastair Douglas, TotallyMoney CEO, says: “While inflation has slowed considerably since the October 2022 peak, it’s still been stubbornly difficult to shake off, consistently driving up the cost of living, squeezing household finances, and piling pressure onto the lives of millions. At the same time, the Bank of England has been slow to cut rates, making things more difficult for homeowners.
“And as if it was a co-ordinated, both the Chancellor and the Governor of the Bank of England have blamed Brexit over the past few days – just weeks ahead of the Autumn Budget, and the next Monetary Policy Committee meeting. Now they’ve found a common enemy, let’s hope they can agree on a plan to kickstart the economy.”
Kevin Mountford, personal finance expert and co-founder of Raisin UK, adds: “Today’s figures show that inflation is still high, keeping the cost of living front of mind for many Brits. Borrowing costs are unlikely to fall anytime soon, which means mortgage and loan repayments are likely to stay elevated for the foreseeable future.
“Our latest Raisin UK Great British Savings Report research highlights how households are feeling the squeeze. Six percent of Britons have used their savings to cover debt, and 5% for healthcare costs. This reinforces the importance of financial resilience and careful planning for essential expenses, especially with winter approaching and bills set to rise.”
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What is significant about September's CPI figures?
The September inflation rate is typically used to decide the level of increase for many benefits, such as universal credit, tax credits and disability benefits.
This rate is also a key part of the pension triple lock, which is used to decide how much pensions will increase by in the following April.
However, the increase is based on either this inflation rate, average earnings growth between May and July, or 2.5%.
Given earnings growth was confirmed as 4.8%, the inflation rate would only have been used if there was a shock acceleration beyond this level.
Tamsin Powell, Consumer Finance Expert at Creditspring, says: “The September inflation figure directly determines how much millions of pensioners and benefit claimants will see in their payments next April. In practice, that means that today’s figure of 3.8% will lead to around a similar increase in April 2026. But in reality, the system often delivers too little, too late. The long lag between the data and the uprating means support rarely keeps pace with what people are actually paying right now for essentials.
“Any rise will offer some relief, but a modest increase next spring won’t be enough to rebuild financial resilience or help households recover from the ongoing cost-of-living squeeze. We need a more responsive system that doesn’t just react to inflation headlines but actively helps people stay afloat, build resilience, and access safe, affordable credit when life’s surprises hit.”
A rise in inflation in September usually means higher-than-expected spending for the Chancellor.
However, higher inflation would also contribute to a higher tax take, with the September rate also typically used to calculate some annual tax increases such as for business rates.
