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Benefits rises to be capped at 1%

Annual rises in most working-age benefits are to be capped at 1% in the coming years, cutting a further 3.7 billion from the welfare bill, Chancellor of the Exchequer George Osborne has announced.

The move means that upratings are likely to be below inflation in future years, gradually reducing the real value of benefits over time and breaking the link which has previously seen them rise in line with prices.

But the Chancellor said he would protect the vulnerable by continuing to increase carer benefits and disability benefits in line with inflation.

Mr Osborne's announcement fell short of the freeze in benefits which some pressure groups feared, but was still greeted with dismay by some anti-poverty campaigners. It comes on top of 18 billion in welfare cuts that had previously been announced.

Delivering his autumn statement to the House of Commons, Mr Osborne said that it was "fair" that welfare recipients should receive similar increases in income to those enjoyed by public sector workers, who are getting a 1% rise as a lengthy pay freeze comes to an end.

Ministers are understood to have been eyeing an end to the link with prices since it delivered a 5.2% uprating in April this year due to higher-than-expected inflation the previous autumn.

Mr Osborne told MPs: "We have to acknowledge that over the last five years those on out-of-work benefits have seen their incomes rise twice as fast as those in work. With pay restraint in businesses and government, average earnings have risen by around 10% since 2007. Out of work benefits have gone up by around 20%.

"That's not fair to working people who pay the taxes that fund them."

The new cap means that benefit recipients will get "more cash but less than the rate of inflation", said Mr Osborne.

It will save 3.7 billion in 2015/16 and deliver "permanent savings each and every year from our country's welfare bill", he told MPs.

The changes will be introduced through a Welfare Uprating Bill to be taken through Parliament shortly.

Most working-age benefits - including Job Seekers Allowance, Employment and Support Allowance and Income Support - will be subject to the 1% cap over the next three years, as well as elements of the Child Tax Credit and Working Tax Credit.

Child benefit will continue to be frozen next year, and will then rise by 1% annually for two years from April 2014.

The earnings disregard for Universal Credit will be uprated by 1% for two years from April 2014, and the Local Housing Allowance Rates - which go towards calculating levels of Housing Benefit - will be uprated in line with existing policy next year, before coming under the 1% cap for two years from April 2014.

Citizens Advice chief executive Gillian Guy said that Mr Osborne's announcement amounted to a recognition that the welfare budget had been "squeezed dry" and that deeper cuts ahead of the introduction of Universal Credit would be "reckless".

"Holding down benefit increases to 1% is better than a total freeze, which would have been disastrous for people on the lowest incomes already having to spend a higher proportion of their income on essentials when rents, food and heating bills are all rocketing," said Ms Guy.

But she added: "The Government can't keep hitting the same people over and over again. Let's not forget, below-inflation benefit increases will not just hit people who are out of work. It will also hurt working families in low-paid jobs who have already been hit by wage freezes and cuts in working hours.

"People on basic benefits and looking for work already have to survive on just 10 a day - less if they're under 25. Many thousands of people already battered by the impact of the recession are on a financial cliff edge."

Anne Longfield, chief executive of families charity 4Children said: "The measures announced in today's Autumn Statement will provide little cheer for those families who are already struggling to cope with the rising cost of living.

"Small changes such as reducing the uprating of benefits can make all the difference to vulnerable families, tipping many into poverty or breakdown - a consequence that will see our welfare system ultimately pay a higher price in the long run.

"It has never been more pressing to start putting families at the heart of the economic recovery. Investing in families now is the only way to get our economy back on track and offer thousands of families a lifeline before their financial difficulties become irreversible crises."

Mental health charity Mencap expressed relief that benefits for disabled people and carers will increase in line with inflation, but said it was "seriously concerned" that ESA - which replaced Incapacity Benefit - will only increase by 1%.

Dan Scorer, senior campaigns manager at Mencap said: "This means a further reduction in support for sick and disabled people. Mencap believes this is unfair and will create increased hardship. ESA is designed to support disabled people preparing for work, and those judged too sick or disabled to ever work.

"Along with people with a learning disability and their families, we are deeply concerned at the announcement of a further 2% cuts to local government budgets in 2014/15, on top of the 27% cuts already being rolled out.

"We believe this will put further pressure on already overstretched budgets for social care, leading to cuts in vital services that enable disabled people to live with dignity and independence."

Chris Johnes, Oxfam's director of UK poverty, said: "Despite the Chancellor's tough rhetoric on tax avoiders, it is once again the squashed bottom who will feel the biggest pinch.

"This fresh round of benefit cuts will pull the rug from under the feet of those already on the edge of destitution.

"The Government should be going further and faster in clamping down on tax avoidance rather than making the poorest people foot the bill for economic failure."

Family Action chief executive Helen Dent said: "The Chancellor hasn't done enough to stem the lines of families at food banks, he hasn't done enough to protect vital services that families need, he hasn't done enough to make work pay and ensure children with parents in and out of work are not pushed further into poverty. He hasn't done enough to help families build a stable home."

Sarah Jackson, chief executive of the charity Working Families, said: "The Chancellor's statement today does not give low-income working parents confidence that he's on their side.

"New legislation will have to be introduced because he wants to break the connection between inflation and benefits. With inflation at 2.7%, his proposed 1% increase in benefits will hit many working parents in receipt of tax credits and child benefit hard, when they are already struggling with pay freezes and rising costs, including childcare."

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