Benefit uprating is the process of increasing how much benefit claimants receive each year. Benefit rates from April 2025 were announced on 30 October 2024, and are described in our briefing on benefits uprating 2025/26.
Inflation-linked benefits and tax credits will rise by 1.7% from April 2025, in line with the Consumer Prices Index (CPI) annual rate of inflation in September 2024.
This Insight discusses how this method makes benefit increases lag behind real-time inflation figures, with the CPI rate of inflation rising by 2.8% in the 12 months to February 2025, and how this affects benefits claimants.
How do benefit levels change with inflation?
The Secretary of State for Work and Pensions is required to review the level of benefits each year to see if they have kept up with increases in general prices.
Since the mid-1980s, most working-age benefits have been increased based on inflation rates. Inflation is usually assessed in the 12 months to September before a new fiscal year (which starts on 6 April each year) and the level of inflation measured at this point is then used to increase benefits from the following April. This method is primarily used due to the time it takes to complete the uprating process for each benefit.
The inflation rate reflects how the price of goods and services in the country has changed over the last year. If benefits lag behind this rate at the time that they are brought into effect, it means that benefit recipients will be able to purchase fewer goods and services for the same amount of cash; that is, the value of the amount they receive in benefits falls in real (inflation-adjusted) terms.
The current uprating method means that benefits reflect inflation as it was six months prior to when the benefit increase will actually take effect. This means that when inflation remains stable over time, benefits keep their real-terms value, whereas when inflation rises over time, benefit rates fall in real terms.
Our briefing on how benefit levels are set goes into further detail on the process of setting benefit levels.
How do time lags in inflation calculations affect uprating?
Because this method calculates inflation from September to September rather than April to April, benefits can end up being uprated by more or less than the average annual inflation for the year in which the uprating takes effect.
For example, in the 2020/21 financial year benefits were uprated by 1.7%, which was the inflation rate in September 2019 when the rates were set, but the average inflation across the 2020/21 financial year was actually lower, at 0.6%.
In September 2021, benefit rates for the 2022/23 financial year were uprated by 3.1%, but the average inflation over 2022/23 was higher, at 10%.
In April 2025, benefits will increase by 1.7%, which is lower than the Office for Budget Responsibility (OBR) forecast annual inflation of 3.2% for 2025/26. This means the amount of money that claimants receive may be worth less in real spending terms if the OBR’s forecasts are correct.
The chart below shows the amount of cash that claimants may have either gained or lost per month in each year since 2020/21. The chart is based on example calculations made by increasing the previous year’s Universal Credit rate for single people using the inflation rate as it was for the whole financial year, rather than based on the September rate, for each year individually.
If we calculated the cumulative effect of the changes shown in the chart above, benefit claimants would have lost out on £56 for the year by the end of 2025/26, if the OBR’s predicted inflation rate is correct.
We usually expect that the yearly variation shown above will even out over time, as each uprating takes into account inflation over the previous year. However, whilst benefit rates eventually catch up to inflation, this can take some time if inflation does not quickly return to its original level. If current forecast inflation levels from the OBR are correct, inflation will not have returned to 1.7% by 2029/30, meaning benefit claimants may potentially continue to lose out over the coming years. A brief IFS article on how benefit payments are tied to inflation goes into further analysis of the impact this had on benefit claimants at a time of especially high inflation, in 2023.
Why can’t we uprate closer to the time that it will take effect?
Successive governments have said that it takes several months to process the increase through the operating systems, meaning that it’s necessary to use inflation figures from the previous September.
Former Work and Pensions Secretary, Thérèse Coffey, told the Work and Pensions Committee in June 2022 that it takes four months to carry out the uprating exercise, so the review of benefit levels must take place in November of the previous year at the latest.
The Permanent Secretary for the Department for Work and Pensions (DWP), Peter Schofield, told the Work and Pensions Committee in March 2020 that, given the “agile nature of Universal Credit”, the uplift could be introduced in two weeks, whereas this was not possible for legacy benefits, such as Jobseeker’s Allowance, and including the State Pension.
This means that benefit levels must be set using the September figure, as this is the most recent figure available in November. As stated above, this is the minimum amount of time that can be given so that the new benefit rates can be introduced for the new financial year.
Therefore, while benefits eventually catch up with inflation in the following year, this is not before claimants have already felt the impact of the lag.
Based on Peter Schofield’s remarks to the Work and Pensions Committee referenced above, in the future, it is possible that benefit uprating could potentially be done based on more recent inflation for Universal Credit, once all claimants are moved from legacy benefits onto Universal Credit.
Further reading
More information can be found in our briefing on benefits uprating 2025/26, and our briefing on how benefit levels are set. Our briefings on State Pension Uprating and the State Pension triple lock explain how pension levels are set.
About the author: Isabel Buchanan is a statistics researcher at the House of Commons Library.
Photo by: Ascannio, via Adobe Stock