Economists warn of tax hikes after Burnham admits social care funding ‘shortfall’
Andy Burnham has admitted there may be a “shortfall” in his ambitious plans to fund a new national care service, as economists warn that taxes will have to rise.
Burnham announced plans to adjust the triple lock from 2030, effectively creating a double lock, using the savings to fund the new service.
The new mechanism will see the state pension rise by either inflation or 2.5 per cent, depending on which is highest, removing wage growth from the equation.
Burnham told Times Radio: “The decision on the triple lock, the adjustment…and it is an adjustment, it’s not getting rid of the whole concept of the triple lock.”
But savings from tweaking the triple lock won’t occur until 2040 and with three more years of the current system, economists have said he would still have to raise national insurance or income tax in the short term to fund the service from 2030, should Labour win the next election.
Burnham admitted that it could be possible the savings would not be enough, saying “if there’s a shortfall, we’d have to be honest about that shortfall and where the money is coming from”.
Higher taxes inbound
In his speech the prime minister ruled out funding the service through borrowing, leaving him with the only option of tax hikes in the interim.
Former director of the Institute for Fiscal Studies, Paul Johnson, wrote on X: “Replacing triple lock with a system that ensures state pension rises with earnings over time, but never rises by less than inflation, makes a lot of sense.
“The idea this will pay for free social care any time soon, though, is for the birds. That will mean higher taxes.”
Funding the service is expected to cost £18bn annually.
Andrew Wishart, senior UK economist at Berenberg, said: “This relatively minor adjustment will restrain spending on state pensions a little in the long run, but surely not by enough to fund a new social care service, free at the point of use like the NHS.
“The prime minister implicitly acknowledged that this can’t be achieved while meeting the 2024 Labour manifesto promises not to raise personal tax rates. Arguing for an increase in one of the main taxes to fund it will wait until closer to the next election.”