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Social Security (Up-Rating Of Benefits) Act 2021

Contents

Policy background

  1. Up-rating is the annual mechanism by which the Secretary of State is required by law to conduct a review of applicable benefit and pension rates each year to determine whether they have retained their value in relation to the general level of prices or earnings. Where the relevant benefit or pension rates have not retained their value, legislation provides that the Secretary of State is required to (or in some instances may) up-rate their value. There are three sets of benefit groups:
    1. those that must rise at least in line with earnings: these are the basic State Pension and the full rate of the new State Pension, the Standard Minimum Guarantee in Pension Credit and survivors’ benefits in Industrial Death Benefit;
    2. those that must rise at least in line with prices: these are mainly additional needs benefits, the largest of which are Personal Independence Payment, Disability Living Allowance, Attendance Allowance and Carer’s Allowance. Other benefits that must also rise at least in line with prices include the Additional State Pension;
    3. those over which the Secretary of State has discretion: the largest of these is Universal Credit but also included are Employment and Support Allowance and Jobseeker’s Allowance. This group is often referred to as the ‘working age benefits’.
  2. Since 2011, the up-rating process has used the September Consumer Prices Index (CPI) figure for the rise in prices and the May-July Average Weekly Earnings (AWE) figure for the growth in earnings.
  3. Final AWE figures for May to July, published on 12 October 2021, has earnings growth at 8.3%. The exceptionally high growth figure is inflated by the negative growth in earnings last year and the unusual employment market flows during the pandemic. This would have significant spending implications for State Pensions and other benefits linked to earnings. Once added, these increases would become the baseline for subsequent years.
  4. This Act modifies section 150A of the Social Security Administration Act 1992 (the 1992 Act) for the tax year 2022-23 so as to provide for the up-rating of the basic State Pension and certain other benefits by at least inflation or 2.5%, whichever is higher. Without the modification section 150A would require up-rating by reference to the increase in earnings.
  5. Last year, when earnings fell by 1%, the Government took forward primary legislation to ensure that State Pensions could nonetheless be increased and increased State Pensions by 2.5%, well above both earnings (minus 1%) and price inflation (0.5%). If it had not taken this action, most State Pensions would have been frozen. Due to earnings growth being inflated due to negative growth last year and the unusual employment market flows during a pandemic, a further one-year adjustment is needed. For the tax year 2022-23 the State Pension and certain other benefits will be up-rated by at least inflation or 2.5%, whichever is higher.

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