Jeremy Hunt is said to have one eye on the general election as he mulls a surprise move in his autumn statement. Photo: Kirsty O'Connor/HM Treasury
Jeremy Hunt is considering announcing benefits cuts in real terms this autumn amid hopes the funds can be used for tax breaks next year ahead of the general election.
Usually benefits in April will exceed the inflation rate for September.
However, the Chancellor is understood to be exploring options including setting the benefit increase at one percentage point below inflation, or using another month's inflation figure when the measure is expected to be lower.
The Bank of England expects that In September, inflation will be 6.9 percent.
But by April next year, according to Bloomberg forecasts, inflation will be 3.5 percent.
These proposals could save the Treasury billions of dollars. pounds at a time when public finances are strained, not least because rising interest rates lead to higher payments to service the public debt.
But this could open the government to accusations that the most disadvantaged are not receiving sufficient protection in the face of the cost of living crisis, and provoke a new split among the Conservatives.
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During her time as Prime Minister, Liz Truss reluctantly agreed to allow benefits to rise in line with inflation (then around 10 percent) following a Conservative rebellion last autumn when news leaked that she was considering not doing so.
The likelihood of significant tax cuts in the Autumn Statement has been downplayed by Mr Hunt and the Treasury given the government's priority is to halve inflation this year.
But with a general election expected in autumn 2024, Conservative MPs expect significant tax cuts in the spring 2024 budget.
The plans were first reported by Bloomberg on Friday. The Treasury declined to comment on speculation about what would be announced in the Autumn Statement.
The process of determining what tax and spending decisions will be made at one of the government's two regular annual budget events has just begun at the Treasury.
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There will be a lot of internal discussion ahead in the two-and-a-half months until the decisions are announced on November 22, with deliberations still at a preliminary stage.
But interest in decoupling benefits from inflation in one form or another is gaining attention , given potential savings and the wider political backdrop.
Two ideas are being considered
Rishi Sunak's government has said it is important to do more to encourage people to move away from welfare dependence and into work.
Allowing benefits to rise at a lower rate than planned would increase relative employment incentives, the Tories are likely to argue.
Bloomberg reported two features of what Mr Hunt and his team say they are doing councilors and officials pay attention when it comes to benefits.
You could see benefits rising by one percentage point less than the rate of inflation — in other words, a cut in real terms that takes into account average prices.
Another, more technical idea concerns which month is chosen for the inflation rate.
This would mean saving billions of pounds while allowing the Government to argue that benefits were rising in line with prices.
Allied dissatisfaction
An ally of Ms Truss expressed disappointment at the development, noting how some senior Mr Sunak's supporters opposed her when she wanted to do something similar last autumn.
It was a brutal reaction from some Tories agree with her proposal to decouple benefits from inflation and instead let them rise by the average wages, forcing her to abandon the plan.
An ally of Truss said: “She wanted to raise benefits in line with wages.” rather than inflation — a move that could cut almost £5 billion from the benefits bill, it is estimated.
“However, a significant minority of her parliamentary colleagues refused to agree to it, including a number of people occupying senior positions in the current cabinet of ministers.”
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