2012’s basic state pension, ISA allowance and social benefit levels are announced

The below post relates to 2012's increases. If you are looking for details of 2013's increases then click here.

 

Update: 29th November 2011 - following the Autumn Statement the Chancellor has confirmed that most working age and disability benefits will indeed be upgraded by the September inflation figure of 5.2%. In addition, The state pension will rise by £5.30 to £107.45 a week, as stated in below. Pensioners receiving pension credit will also benefit from an increase worth £5.35.

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Next year’s state pension, ISA allowances and social benefit levels are announced.

This morning the Office of National Statistics (ONS) announced the UK inflation figures for September 2011. Now while most people may only pay a passing interest in the monthly inflation announcements, September’s figures actually impact on many people’s lives.

What were September’s inflation figures?

Annual inflation in September as measured by the Consumer Prices Index (CPI) increased to 5.2%, up from 4.5% in August. The Retail Prices Index (RPI) measure rose to 5.6% from 5.2% (which is the highest level in 20 years).

And what’s the difference between CPI and RPI?

Both the CPI and RPI are attempts to estimate inflation in the UK. The RPI measure is arguably the better known in the UK. Sometimes referred to as the “headline” rate of inflation, it is the rate often cited by unions as a benchmark for agreeing pay settlements. It was also the basis for pension increases, National Savings Index linked investments and a host of social benefits.

The CPI measure is the rate the government’s overall inflation target is based on. It is an internationally comparable measure of inflation

Both indexes analyse the prices changes of a range of goods and services over time (referred to as the ‘basket’). Some of the goods and services will carry a higher weighting within the indexes, reflecting the fact that we spend more on some items than others. In addition, the actual items which are included in the basket are reviewed each year and are subject to change.

So why do the CPI and RPI values differ?

Firstly the two measures cover different items. For example, the CPI does not include Council Tax, mortgage interest payments and some other housing costs. The CPI measure also includes some items such as charges for financial services which are not in the RPI. Another difference is that the CPI measure covers a broader sample of the population in its calculations than RPI.

But the main difference in value is due to a difference in the mathematics of each index which means that the CPI is always lower than RPI for a given data sample.

So why are September’s inflation figures important?

A host of social benefits and tax breaks are increased in line with inflation, as measured by September's figures. The actual increase to benefits takes affect at the start of the next tax year. The table below summarises the annual increases to key benefits and allowances:

Type of benefit	Annual increase due in April 2012*
Jobseeker's Allowance, Income Support, Housing Benefit, and other income-related benefits	Consumer Prices Index (CPI) in September 2011: 5.2% - Jobseekers allowance for those under 25 to increase by £2.80 to £56.25 a week. For those over age 25 the allowance will increase by £3.50 to £71 a week
Disability Living Allowance, Carer's Allowance and other non income-related benefits	Consumer Prices Index (CPI) in September 2011: 5.2%
State pension	Under the terms of Triple Guarantee the basic state pension is likely to increase in line with CPI. This means an increase from the current £102.15 a week for single pensioners to £107.45 and from £163.35 to £171.84 for couples
Tax credits and public sector pensions	Consumer Prices Index (CPI) in September 2011: 5.2%
Annual ISA allowance	Retail Prices Index (RPI) in September 2011: 5.6%, which means an increase from the current £10,680 to £11,280 (as confirmed in the Autumn Statement on 29th November 2011)

* these figures are based on calculations under the current rules. The Chancellor will confirm the official limits in due course in his Autumn statement later in the year. While these should not vary from those above there is always the possibility that the Government could alter the planned increases as part of deficit cutting plans.

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