Fears that poor face second year of benefits cuts after inflation tipped to top 18%

New PM told not to repeat mistake of last April – and ensure payments rise in line with prices

Britain’s poorest people must not be forced to endure a second successive year of benefits cuts after a shock warning that inflation will top 18 per cent, anti-poverty campaigners say.

The alarm was raised after the prediction that prices will be growing at their fastest rate in almost half a century by January – when benefits are only set to rise by around 11 per cent from April.

Last April, then-chancellor Rishi Sunak was strongly criticised for allowing benefits to fall sharply in real terms, a move he tried to blame on the government’s antique computer system.

The Treasury promised there would be no repeat – but the investment bank Citigroup is now warning of inflation “entering the stratosphere” in January, throwing that pledge into doubt.

The Child Poverty Action Group told The Independent that “social security must be increased to match inflation”, rather than sticking to rigid rules linking payments to September’s likely lower rate.

And Simon Francis, of the End Fuel Poverty Coalition, said: “Any real terms cuts to benefits will plunge more people into fuel poverty, with all the health and social misery which this causes.”

The spectre of 18 per cent inflation – much higher than the Bank of England forecast of a 13.3 per cent peak – opens up a potential new crisis for the incoming prime minister, on 6 September.

Every extra 1 per cent spent on social security costs the government almost £2.5bn – which means raising benefits by 18 per cent, instead of 11 per cent, would impose a massive bill.

It increases pressure on the winner, expected to be Liz Truss, to cut annual energy bills tipped to exceed £4,000 next year, the trigger for the much higher rate, Citigroup said.

The foreign secretary has refused to set out her proposals for curbing rocketing bills – arguing tax cuts that will favour the wealthy are her priority, while attacking “handouts”.

Meanwhile, in the latest dramatic prediction for the energy price cap, the consultancy firm Cornwall Insight warned it could reach £5,341 from April – up from £1.277 in April this year.

Rishi Sunak’s camp stepped up its assault on his rival’s plans, his supporter Kevin Hollinrake saying: “People are going to be on the streets. Things are going to be that bad for some households.”

One energy boss, Utilita’s Bill Bullen, urged the Conservative party to end its leadership race now to get a grip of the crisis, arguing the public “cannot wait” for 5 September.

But Downing Street again insisted it is for Boris Johnson’s successor to come up with a rescue plan, as it said people should carry on using as much energy as they want and dismissed fears of possible blackouts.

Benjamin Nabarro, chief UK economist at Citigroup, said: “We now expect CPI inflation to peak at over 18 per cent in January,” higher than the 17.8 per cent reached in 1979.

The squeeze on household would further push the UK economy deeper into recession, he said, and probably trigger further interest rate hikes.

The cause was wholesale natural gas prices trading at close to 10 times their normal levels in both the UK and the rest of Europe, Citigroup said.

Rebecca McDonald, chief economist at the Joseph Rowntree Foundation, told The Independent: “As the situation becomes increasingly desperate, government support must be at least doubled for low-income families and next April’s increase in benefits must be as close as possible to inflation.”

Alison Garnham, the Child Poverty Action Group’s chief executive, criticised the existing emergency help with energy bills being “flat rate”, penalising families with children.

“That’s a recipe for disaster for children in the lowest income families. Without more help the coming price storm will overwhelm struggling families,” she said.

And Mr Francis added: “While we need urgent, significant support to help people stay warm this winter, we also need the government to avoid repeating past mistakes.”

Pat McFadden, Labour’s shadow chief secretary to the Treasury, said: “With each passing day there is a new survey saying energy prices will rise even higher than expected and with them, inflation too.

“People simply cannot afford the rises projected to hit them in the coming months.  That is why Labour has proposed freezing energy bills over the coming winter, saving households £1,000 and protecting them from rocketing prices.”