Briefing Note (BN120)

The impact in 2012-13 of the change to indexation policy

Date: 18 October 2011
DOI: 10.1920/bn.ifs.2011.00120

The inflation figures for September 2011 released this week by the Office for National Statistics (ONS) are important, because they affect how the tax and benefit system will look in 2012-13. Most parameters of the personal tax and benefit system - such as income tax thresholds and benefit amounts - and public sector pensions are typically increased each April in line with the rate of annual inflation measured in the previous September .

These indexation policies matter a lot. They affect changes in indexed parameters every year, so the effects of indexation policy accumulate over time, and their impacts on the levels of (for example) benefits can soon become very large.