The UK chancellor has given the strongest signal yet that he could suspend the flagship pensions “triple lock” this year, as he struggles to contain public spending pressures arising from the Covid-19 pandemic.
Rishi Sunak could have to pledge as much as £4bn more on pensioners from next year if he sticks to the policy, further squeezing his ability to lessen the strains in areas such as hospitals, schools and courts.
“We will approach these decisions with fairness in mind for pensioners and taxpayers,” he told the BBC’s Today programme on Thursday. He said the triple lock was government policy, but declined to say if it would be honoured this year.
In a sign that Sunak and Boris Johnson have agreed to suspend the triple lock this year, the prime minister used identical language to the chancellor.
“We’ve got to have fairness for pensioners and the taxpayers, but I think you’ll have to wait and see what the chancellor comes up with,” Johnson said.
Anomalies in wages data pushed the headline growth rate of average UK earnings up to 5.6 per cent in April, with economists forecasting the rate would rise to about 8 per cent by July.
If the chancellor sticks to the Tories’ triple-lock vow — which ensures that state pensions rise annually by the highest out of average earnings growth, inflation or 2.5 per cent — the government will have to increase pensions by the headline rate in July.
The Office for National Statistics and economists said that the true rate of earnings growth was much lower.
Pensioners received the default 2.5 per cent increase this April. But pay rates have been distorted by growth being compared with last year, when millions of people received just 80 per cent of their salaries.
Sunak admitted: “I recognise people’s concerns about what that might mean given some of these numbers being put around.” He said the Treasury was still waiting for final wages data.
Economists have criticised the triple lock as a policy guaranteed to drive up pensions spending faster than working-age earnings over time — potentially at the expense of other areas of the welfare system, while making it harder to address other spending priorities.
“The more volatility in the economy, the more expensive it’s likely to be,” Richard Hughes, chair of the Office for Budget Responsibility said earlier this week.
According to OBR forecasts, the triple lock would raise state pension spending in 2024-25 by £6bn more than if it rose in line with inflation, and £3.2bn more than if it were linked just to earnings.
The fiscal watchdog said the government would face pressure to spend an extra £10bn a year as it had not yet factored in any spending beyond this fiscal year on test and trace and revaccination programmes, clearing healthcare backlogs, catching up for lost learning and plugging losses in transport fares.
Lord David Willetts, president of the Resolution Foundation, a think-tank, said the Covid crisis had “laid bare the design faults” of the triple lock and argued the next pension increase should be linked to a measure of earnings growth smoothed over the past two years.
Sunak denied there were tensions with Johnson over the future of public spending, but the chancellor is a fiscal conservative who wants to bring a deficit of £300bn under control.
Johnson is viewed in Treasury circles as a politician more concerned with spending money than controlling public expenditure. Whitehall is braced for an autumn of tension between No 10 and No 11 ahead of the chancellor’s multiyear spending review.
The prime minister has, however, endorsed the decision to end the Covid-related £20-a-week uplift in universal credit at the end of September, in spite of cross-party pleas that it be retained.
“I think the best way forward is to get people into higher wage, higher skilled jobs,” he told MPs at a liaison committee on Wednesday.
But Johnson also signalled he wanted to see longer school days to help pupils catch up on lost learning caused by the pandemic.Sunak blocked a £15bn catch-up plan fearing a “temporary” initiative to pay teachers to work longer hours was not backed by evidence, according to people close to discussions.
Johnson on Wednesday hinted more money would be found in the autumn spending review if the evidence supported longer school days.