In the days when school maths involved the calculation of compound interest any schoolboy would have understood the relationship. These days it takes the IFS to explain the effects of using different indices to uprate benefits.
Labour used the RPI or a variant of the Rossi index to calculate benefit increases; although this was changed by the current government to the CPI, and subsequently to a cap of 1% for the next increase, the increase last year of 5% and previous increases based on RPI have taken the welfare bill to £208bn - a third of public expenditure. The effect of compounding is easily demonstrated by the following example;
|Inflate||£ millions||Inflate||£ millions|
The difference between the two, of about £20 billion, is equal to half the UK defence budget. Last year's 5% increase alone outweighed all the cuts made by IFS to disability benefits.