The government is looking to end the automatic annual increase in benefits in line with inflation. If this move goes ahead many benefits could be frozen for two years and then only rise in line with average earnings. Over recent years inflation has risen much faster than average earnings and switching the link could save as much as £14bn.
Because benefits are rising faster than wages it is felt this discourages claimants from seeking work.
These changes would affect a wide range of benefits including job-seekers allowance and housing benefit but are unlikely to be implemented before 2014.
One benefit which will not be affected is the state pension. Pensions now rise annually by either inflation, earnings or 2.5% whichever is the higher.
Looking for a financial adviser near you?
Do you need financial advice? An independent financial adviser can show you how to make the most
of your money. Find your nearest qualified and regulated adviser using this VouchedFor search tool.
Alternatively, Hargreaves Lansdown, one of the UK’s largest firms providing restricted financial advice, is offering a £200 John Lewis voucher* to new clients.