State pension set for surprise boost as Chancellor prepares for rise in inflation next month

But it could cost Jeremy Hunt hundreds of millions of pounds, reducing his room for manoeuvre on tax cuts.

Official figures published on Wednesday are expected to confirm that inflation fell by around a percentage point to 6.8 per cent in July.

It is likely to add hundreds of millions of pounds to next year’s state pension pot, which is increased in line with the highest of three measures – a flat 2.5 per cent rise, average earnings growth measured from May to July each year, and inflation measured in the year from September each year – according to the Government’s triple lock policy.

This means the slight increase in inflation in August could add hundreds of millions of pounds to the state pensions bill Mr Hunt must fund from April next year. “The Prime Minister and Chancellor want to lower the tax burden but inflation reduction is the priority,” a source said.It came as the respected Institute for Fiscal Studies warned that announcing significant tax cuts before next year’s election could put the UK’s “scary” public finances at risk.

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