Ian Duncan SmithThe Government is reportedly considering linking hikes in benefit payments to average pay rather than inflation.

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


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

The claims come 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.

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 the 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 on Monday, the Social Market Foundation think-tank raised fears that the poorest households would face further financial difficulties by changes to monthly payments. It said attempts as part of the new Universal Credit system to encourage claimants to budget properly and make their own rental payments risk "backfiring".

But Mr Duncan Smith, who refused to move to another Cabinet brief in the recent reshuffle, said the current system was set around the "problems of a minority" while the majority of people went into the benefit system through temporary job loss. Most of those had been paid monthly, he added.