Chancellor Rishi Sunak hinted he could block an increase to the state pension today, backtracking on his manifesto pledge to keep the triple lock.
“I very much recognise people’s concerns” he told the BBC’s Today programme. He went to on to highlight that the triple lock is government policy, but did not commit to topping up the state pension if it needs to rise sharply under the policy.
The triple lock “needs to be fair to taxpayers as well as pensioners” he said.
A statistical anomaly could result in pensioners receiving an 8 per cent windfall to their pensions.
Under the triple lock, the state pension rises each year in line with whichever figure is highest out of inflation, wages or 2.5 per cent.
The Office for Budget Responsibility, the government’s spending watchdog, published figures on Tuesday predicting that wages could surge 8 per cent this year.
The organisation said that if the government goes ahead with topping up pensions in line with wage increases, it will cost the exchequer £3bn.
The government committed to maintaining the triple lock until at least 2024 in their manifesto. However, severe pressure on the UK’s public finances as a result of a steep increase in spending to deal with the pandemic has put the the Chancellor under pressure to put the public purse on a more sustainable path.
Covid debt puts triple lock in crosshairs
The scale of debt the UK has taken on to finance spending to deal with Covid could prompt the government to scrap the triple lock entirely to strengthen the public purse, experts said.
The UK’s debt to GDP ratio is currently the highest it has been since the 1960s. The OBR also said that the government is likely to face a £10bn shortfall for each of the next three years due to ongoing Covid spending.
The public finances are also highly exposed to sharp price rises due to much of the stock of debt being linked to inflation. Typically, government’s can ease their debt burden due to the monetary value of the economy rising sharply when inflation is high.
Lord Willetts, President of the Resolution Foundation, says: “The Covid crisis has laid bare the design faults of the Triple Lock, with a severe jobs crisis last year inadvertently contributing to an unnecessary and unjustified 8 per cent rise in the state pension next year.
“The Chancellor should take the opportunity this Autumn to replace the Triple Lock with a smoothed earnings link. This would mean the state pension would rise in line with the living standards of working age people – a change that would be fair to all generations.”
The high debt burden and widening deficit is likely to prompt the Chancellor to tweak the tax and pensions regime in order to strengthen the UK’s finances.
Rishi Sunak will present his latest round of measures in November’s spending review.