The Government is considering linking hikes in benefit payments to average pay rather than inflation, it was claimed last night.

Key Points

  • Universal credit to replace six benefits and tax credits
  • Due to launch from October 2013
  • Will be paid monthly, not weekly or fortnightly

The automatic uprating could be axed and welfare payments frozen for two years, with any increases then linked to average pay, according to the BBC's Newsnight programme.

A Department for Work and Pensions (DWP) spokeswoman said any changes to how benefit hikes are calculated will be looked at by the Government later this year.

She said: "Uprating of benefits will be considered by the Secretary of State and Chancellor as usual later this year."

The claims came as Work and Pensions Secretary Iain Duncan Smith insisted shifting to monthly benefit payments would help the poorest as he dismissed claims the move will push low-income families into debt.

He told MPs the new universal credit had been designed for the majority, but would also help longer-term claimants by weaning them off fortnightly payments before they return to work.

'Back into the 21st century'

The Tory minister also defended moves to encourage claimants who have limited internet skills to apply online, arguing it would be a "very good opportunity to get these people back into the 21st century".

MPs on the Work and Pensions Committee were also told that waiters, hairdressers and any other worker that receives tips will have to declare them if they claim the new benefit.

"Tips are counted as income," welfare reform minister Lord Freud said.

Under universal credit, there will be one single monthly benefit payment — rather than weekly or fortnightly as at present — and social tenants will have to pay landlords themselves.

In a report yesterday, the Social Market Foundation think tank raised fears the poorest households would face further financial difficulties by changes to monthly payments.

The report, entitled Sink or Swim: the Impact of Universal Credit, said attempts to encourage claimants to budget properly and make their own rental payments risk "backfiring" (see Monthly benefit payments MSE News story).